Synopsis:

ANZ sees the recent EUR/USD rally as a short-term tactical move rather than a longer-term structural shift. While German spending plans and Ukraine ceasefire optimism have boosted the euro, uncertainties around policy implementation and ongoing weak EU data suggest caution. Without fresh positive catalysts, EUR/USD is unlikely to advance beyond the upper 1.08/lower 1.09 range.

Key Points:

1️⃣ EUR/USD Posts Best 4-Day Rally in a Decade 📈

• Driven by German spending plans and ceasefire hopes.
• EUR outperformed against AUD and NZD as well.

2️⃣ EU Yields Jump on German Spending Proposals 🇩🇪

• Incoming Chancellor Merz proposed a €500bn investment plan.
• If implemented, this could support a turnaround in EU economic activity.

3️⃣ Skepticism Over Sustainable EUR Gains 🤔

• Ceasefire talks remain uncertain, posing geopolitical risks.
• Germany’s new government still needs to finalize and implement spending plans.

4️⃣ FX Markets Show Cautious Optimism 📊

• Short-term options favor EUR upside, but longer-term risk reversals still lean bearish.
• This signals that traders see the rally as a tactical move, not a structural shift.

Conclusion:

ANZ remains cautious on the euro’s ability to extend gains beyond 1.08–1.09 without additional catalysts. While optimism over German spending and geopolitical developments have fueled a short-term rally, longer-term sustainability will require tangible improvements in EU economic data.