EUR/USD Price Analysis: Can the Euro Sustain Its 4.5% Rally and Break Above 1.10?
EUR/USD Soars on Weak US Jobs Data and Germany’s Fiscal Expansion
EUR/USD surged 4.5% last week, marking its biggest weekly gain since 2008, driven by a combination of weak US labor market data and Germany’s shift towards fiscal expansion. The pair soared to 1.0888, its highest level in four months, as traders recalibrated their Federal Reserve rate cut expectations. With the US Nonfarm Payrolls (NFP) missing forecasts at just 151K jobs and unemployment ticking up to 4.1%, market sentiment shifted further in favor of Fed easing, sending the US Dollar Index (DXY) tumbling to 103.90.
At the same time, the European Union's largest economy, Germany, announced a major fiscal stimulus plan, loosening its historically strict borrowing rules to inject €500 billion into infrastructure and defense spending. The combination of a weaker dollar and a stronger eurozone policy stance gave EUR/USD a powerful boost, but the key question remains: Can the euro break through 1.10, or is a pullback inevitable?
US Jobs Data and Fed Rate Cut Expectations Drive the Dollar Lower
The US economy added just 151K jobs in February, well below expectations of 170K, while unemployment edged up to 4.1%. Perhaps more concerning for the Federal Reserve was the slowdown in wage growth, with average hourly earnings rising just 0.3%, down from January’s 0.5% increase. This reinforces the argument for multiple Fed rate cuts this year, with markets now pricing in 78 basis points of easing, or approximately three rate cuts, starting as early as June.
In response, Treasury yields plunged, with the 10-year yield dipping to 4.24% and the 2-year yield falling to 3.93%, making the dollar less attractive for investors. The US Dollar Index (DXY) broke below 104.00, further supporting EUR/USD’s rally. If upcoming inflation data also shows a slowdown, the Fed could be forced into even more aggressive cuts, keeping pressure on the dollar.
Germany’s Bold Fiscal Shift Sparks Euro Strength
While the dollar’s weakness is a key driver of EUR/USD’s surge, Germany’s decision to abandon its fiscal restraint and boost spending has further fueled the rally. The German government plans to create a €500 billion off-budget fund for infrastructure, defense, and economic growth over the next decade, marking a historic shift in policy.
Additionally, European Commission President Ursula von der Leyen announced plans to mobilize up to €800 billion in new defense investments while granting EU member states more financial flexibility. This signals a major shift in European economic policy, reducing reliance on external allies and fostering long-term domestic growth.
For the euro, this is a game-changer, as it could strengthen European economic resilience and attract foreign capital. Investors now see the region’s economic outlook improving, which is why EUR/USD rallied so aggressively last week.
Technical Outlook: Can EUR/USD Break 1.10?
EUR/USD has been in a strong uptrend, with the break above 1.08 confirming bullish momentum. The next major resistance level sits at 1.0932 (161.8% Fibonacci extension), and if that level is cleared, the pair could test 1.10, a key psychological level.
- Support Levels: 1.0764, 1.0635
- Resistance Levels: 1.0932, 1.10
From a technical perspective, the 50-day and 100-day moving averages are sloping upward, reinforcing the bullish case. However, indicators like the Relative Strength Index (RSI) are nearing overbought territory, suggesting a short-term correction may occur before another rally attempt.
Potential Risks: US Tariffs and Inflation Data
While the euro is currently benefiting from bullish momentum, risks remain. Uncertainty over US trade policy could create headwinds for EUR/USD, especially as Trump’s recent tariff announcements have been met with investor skepticism. If the US imposes new tariffs on European goods, it could limit the euro’s upside potential.
Additionally, next week’s US inflation data will be a key catalyst. If inflation comes in hotter than expected, it could slow the Fed’s path toward rate cuts, potentially supporting the dollar and capping EUR/USD’s gains.
Final Outlook: Can EUR/USD Sustain Its Rally?
EUR/USD’s 4.5% surge last week was fueled by a combination of weak US labor data, rising Fed rate cut bets, and Germany’s fiscal expansion. The technical setup suggests the pair could push toward 1.10 in the coming weeks, but short-term overbought conditions and US inflation risks may trigger a brief correction before another breakout attempt.
If the Fed continues its dovish shift, and Germany’s spending boost further strengthens European economic prospects, EUR/USD could be setting up for a long-term bullish reversal, potentially targeting 1.12-1.14 later this year. For now, traders should watch the 1.0932 level closely—a break above would confirm further upside toward 1.10, while a failure to hold 1.0764 support could signal a short-term pullback.
