German fiscal stimulus fuels EUR/USD surge. Our technical analysis highlights potential overstretch and mean reversion decline. Key support and resistance levels are identified to help traders navigate potential volatility.
Chart of the week: EUR/USD
The recent rapid ascent of the Euro against the US dollar has been driven by an aggressive fiscal stimulus spending plan from Berlin. The EUR/USD has rallied by 7.6% from its 13 January low of 1.0178 to its recent high of 1.0955 on 18 March.
Germany’s newly elected Chancellor Friedrich Merz has proposed the biggest government spending spree since reunification in 1990, where defense and infrastructure outlays could amount to approximately 1 trillion euros, around 20% of GDP.
Therefore, the European Central Bank's (ECB) monetary policy guidance is likely to be less dovish in the second quarter of 2025 because Germany’s aggressive expansionary fiscal policy can do the “heavy lifting” to reverse the Eurozone’s sluggish growth trajectory in the past two years.
Fig 1: EUR/USD medium-term trend as of 21 Mar 2025 (Source: TradingView)
Through the lens of technical analysis, price actions of highly liquid tradeable financial instruments oscillate within trends.
The daily RSI momentum indicator of the EUR/USD flashed out a prior bearish divergence condition at its overbought region on 18 March before it reversed down on 20 March.
These observations suggest that the medium-term uptrend of the EUR/USD from its 13 January low has reached an overstretched condition where the odds have increased for a potential mean reversion decline to retrace some of the gains seen in the past three months
Watch the key medium-term resistance at 1.0970 with the intermediate support coming at 1.0730 (also coincides with the 20-day and 200-day moving averages). A break below 1.0730 may see a deeper corrective mean reversion decline to expose the next support at 1.0600.
