EUR/USD is trading around 1.1340 US dollar as the American session starts. The currency pair is mildly bullish, trading just below the 20 Simple Moving Average (SMA). This exercise uncovers a game of chicken between buyers and sellers to see who wins the battle for direction.
Perhaps that explains why the dollar is by far the weakest currency on the foreign exchange board. This USD weakness has kept EUR/USD from falling much lower thus far, letting the euro bounce back from the recent political chaos in Germany. Resilience from the euro. The declining dollar has been helpful for the euro, analysts say.
Resistance levels for EUR/USD remain solid at 1.1380, 1.1425, and 1.1475. On the other hand, resistance levels are set at 1.1370, 1.1410, and 1.1465. The current short-term positioning for EUR/USD based on recent trading activity indicates neutrality. As shown by this unoptimistic bearish analysis of doom on the 4-hour chart.
European economic indicators have been largely responsible for shaping the market sentiment. The Eurozone’s services production was revised unchanged at 50.1, indicating a modest growth in the sector. The Composite PMI for the Eurozone was revised higher, from 50.1 to 50.4. Whatever the reason, this change is a welcome sign that overall economic conditions are slightly improving.
The politics of Germany complicate the picture considerably and have weighed on the euro’s performance since. Even Friedrich Merz, leader of that conservative party, couldn’t win a majority in a divided parliament to be chancellor. He requires 316 of 630 seats in the Bundestag. Worries over political stability in Europe’s largest economy deepened as he only managed to get across the finish line 310, far less than the 355 needed.
German business is already starting to howl as the service sector comes under pressure. In fact, it has backtracked into contraction, with a confirmed Services PMI of 49. This contraction is a painful indicator of the headwinds businesses are currently facing and may come to bear on the region’s economic growth in general.
“The euro area economy eked out further growth at the start of the second quarter, but the pace of expansion was again marginal and even slowed on the month.” – Hamburg Commercial Bank (HCOB) survey
Traders are on the edge of their seats over these developments. It’s extremely important to assess what effects this level of political uncertainty might have on market dynamics moving forward. The euro’s strength is increasing, as the dollar weakens. At the same time, Germany’s own internal problems are sure to impact future trading flows.