11 Mar 2025

EUR/USD rises above 1.0900 as the US Dollar continues to weaken, driven by increasing concerns regarding the economic outlook of the United States.

The Euro appreciates following the German Greens' agreement to endorse defense spending initiatives. Market participants are now looking forward to the release of the US JOLTS Job Openings data for January and the Consumer Price Index (CPI) data for February.

During European trading hours on Tuesday, EUR/USD reached a new four-month high, surpassing 1.0900. The major currency pair has gained strength as the US Dollar (USD) lags behind its counterparts amid heightened worries about a potential economic downturn in the United States. The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, has hit a four-month low near 103.30.

Recently, investors have moved away from the US Dollar, driven by concerns that the US economy may encounter significant shocks in the near future due to President Donald Trump’s “America First” policies. Initially, market participants anticipated that Trump's policies would lead to long-term inflation and growth; however, they are now bracing for considerable economic instability in the short term, particularly as US employers are expected to feel the impact of increased tariffs.

Business owners are unlikely to absorb the full burden of these tariffs and will likely pass the costs onto consumers. This situation could lead to a notable decrease in overall demand, as rising prices would erode consumers' purchasing power. The growing apprehension regarding a slowdown induced by tariffs has also heightened market expectations that the Federal Reserve (Fed) may opt to lower interest rates in the upcoming May policy meeting. The probability of a rate cut by the Fed in May has risen to 51%, up from 37% just a day prior, according to the CME FedWatch tool.

Investors will be closely monitoring the US Consumer Price Index (CPI) data for February, set to be released on Wednesday, for further insights into the Federal Reserve's monetary policy direction. The inflation figures are anticipated to show a slowdown while still exceeding the Fed's target of 2%. On Friday, during an economic forum at the University of Chicago Booth School, Fed Chair Jerome Powell remarked that the Fed's policy is not predetermined and indicated that the central bank could sustain "policy restraint for a longer period if progress on inflation stalls."

In the upcoming Tuesday session, attention will also be directed towards the US JOLTS Job Openings data for January, scheduled for publication at 14:00 GMT. Economists predict that US employers will report approximately 7.75 million new job openings, a slight increase from the 7.6 million recorded in December.

Daily market movers summary: EUR/USD gains strength as Euro excels

The EUR/USD pair's strength is largely attributed to the Euro's (EUR) superior performance relative to other currencies. The Euro is rising amid expectations that the German Green Party, led by Franziska Brantner, will endorse the defense spending agreement set for discussion on Thursday. Optimism regarding the Greens' willingness to extend Germany's borrowing limit has increased following favorable remarks made by Brantner during a Bloomberg interview on Tuesday.

Franziska Brantner, co-leader of the Green Party, stated, "We are certainly prepared to engage in negotiations," emphasizing the urgent need for Europe to enhance its defense spending in light of the critical situation in Ukraine. Previously, the Greens had expressed their opposition to limiting 'debt reforms.' On Monday, Brantner indicated that the party is unlikely to permit the next Chancellor, Friedrich Merz, and the Social Democratic Party’s (SDP) co-leader, Lars Klingbeil, to exploit the challenging European security landscape.

The Euro has demonstrated robust performance for nearly two weeks, as an expansion of Germany's spending capacity through adjustments to the "debt brake" could invigorate an economy that has faced significant contraction over the past two years. Furthermore, the proposed German spending initiatives have prompted traders to reevaluate their expectations regarding the European Central Bank's (ECB) potential for two additional interest rate cuts by summer. The ECB has already implemented two rate reductions this year, and traders had anticipated two more cuts, driven by strong confidence that Eurozone inflation will sustainably return to the target rate of 2% this year, despite concerns over a slowdown linked to possible US tariffs.

Technical Analysis: EUR/USD Surpasses 1.0900

On Tuesday, the EUR/USD pair surged past the 1.0900 mark. This significant movement follows a decisive breakout above the previous high of 1.0630 recorded on December 6. The long-term perspective for this major currency pair remains optimistic, as it consistently trades above the 200-day Exponential Moving Average (EMA), currently situated around 1.0640.

The 14-day Relative Strength Index (RSI) has risen to approximately 75.00, signifying robust bullish momentum.

In terms of support, the December 6 high of 1.0630 is expected to serve as a critical support level for the pair. On the other hand, the psychological threshold of 1.1000 will represent a significant resistance point for Euro bulls.