Germany is implementing constitutional reforms to increase defence spending due to reduced U.S. military support. This has positively influenced the EURUSD, which rose past 1.08725 and 1.08765, reaching 1.0901 before facing resistance.
The pair has since retraced, testing the break levels that sparked the previous rise. A decline below 1.08725 – 1.08765 could threaten the breakout, potentially leading to movement down towards the 61.8% retracement at 1.08174, reinforced by the ascending 200-hour moving average.
Key Support Zone Under Scrutiny
Currently, the support zone around 1.0875 is under scrutiny. Holding above it may pave the way for further gains, while a fall could lead to declines towards 1.08174.
Germany’s decision to embed higher defence spending into its constitution follows a period of waning military backing from the United States. This adjustment has bolstered the euro, prompting the EURUSD to climb above 1.08725 and 1.08765 before encountering resistance at 1.0901. However, the bullish momentum has since faltered, with the pair pulling back to reassess the levels that originally fuelled the advance.
A breach below the 1.08725 – 1.08765 range presents a risk to the recent breakout, opening the door for movement downward towards 1.08174. That level carries additional weight as it coincides with the 61.8% Fibonacci retracement and aligns closely with the 200-hour moving average, which continues to slope upwards. A failure to stabilise above this moving average could indicate weakening sentiment, placing increased focus on the next potential downside markers.
Market Sentiment And Economic Factors
As the exchange rate flirts with the 1.0875 support zone, the market remains at a crossroads. If the pair holds above this region, upside targets could remain in play. Conversely, a sustained drop below this area might amplify selling pressure and bring the next retracement level into focus. This puts particular emphasis on short-term positioning, as any shifts in momentum will likely inform the direction of trading over the coming sessions.
Technical indicators alone, however, do not dictate price movement. Broader economic conditions, including inflation trajectories and central bank policy signals, will continue to feed into sentiment. Given the policy adjustment in Germany and its potential economic ramifications, market participants must remain attuned to both technical and macroeconomic developments.
The next few weeks may present opportunities for those watching how price reacts to these well-defined levels. The way buyers and sellers behave around support thresholds could offer further clues as to whether the wider upward structure remains intact or if a deeper pullback is on the table.
