EURUSD in Focus After the Conservatives win the German ElectionEURUSD has traded as high as 1.0528 overnight after the Conservatives, led by Friedrich Merz won the German election.
Whether this move is capable of becoming something more than a relief rally response is likely to be determined by a number of factors, some of which are specific to Germany, including how quickly a new government can be formed, their approach to Ukraine, and perceived willingness to embrace removing the ‘debt break’, strict limits enshrined in German law after the 2008 financial crisis, to fund spending on much needed infrastructure.
Other factors likely to impact EURUSD this week include President Trump’s next moves on Ukraine and trade tariffs, as well as the release on Friday of the latest US PCE Index release, which is the Federal Reserve’s preferred gauge of inflation (1330 GMT Friday).
The Final Factor Relates to the Technicals.
Having posted a high at 1.0514 on February 14th 2025, EURUSD entered into a choppy trading period ahead of the weekends German elections. This likely reflected trader uncertainty ahead of what was potentially an important driver of future EURUSD price sentiment.
However, what this sideways activity has provided are several potentially important levels to monitor over coming sessions as we move into the new trading week. Closing breaks below support or above the resistance points, might offer clues to the potential direction of next EURUSD price moves.
Reaction to Election Results So Far…
The initial EURUSD price reaction to the election results saw EURUSD rally to challenge the first possible resistance offered by the February 14th high at 1.0514. This level has managed to cap attempts to move higher but traders may well be watching this level on a closing basis, as confirmed breaks above it might suggest a more sustained phase of price strength.
While a closing break of a previous failure price high can reflect potential for an improving technical picture, there is perhaps an even more important resistance band, we may also need to focus on.
Take a look at the above chart, there are 2 further failure highs near to today's price activity, which were posted on December 17th 2024 at 1.0534 and at 1.0533 on January 27th 2025. If possibilities of a more sustained phase of EURUSD price strength are to be seen, this 1.0533/34 area may be the one to watch on a closing basis.
While much will depend on future price trends, successful closing breaks above 1.0533/34 might be an indication that risks are turning towards a further attempt to push to higher levels.
What if 1.0533/34 Resistance Holds?
Having found EURUSD sellers previously at this 1.0533/34 level, it is just as possible they will be found again and even prove strong enough to hold and reverse current price strength. As such, we must also be aware of the support levels on the downside that if broken, may see a resumption of price weakness.
Last week’s low posted on February 19th at 1.0401, coincides with the 38.2% Fibonacci retracement of price strength seen in February, which stands at 1.0406.
These may well provide strong support on any dips in EURUSD prices, however if closing breaks of this support range were to develop, evidence may well be building for a more extended phase of price weakness.
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