EUR/USD forms bullish flag ahead of US $1.9 trillion stimulus debate

Written by: Crispus Nyaga
February 22, 2021
  • The EUR/USD price formed a bullish flag today after the strong German sentiment data.
  • The manufacturing sentiment rose to the highest level since 2018.
  • The focus will be in Washington where politicians will debate the $1.9 trillion stimulus package.

The EUR/USD price rebounded today after the relatively strong German sentiment data from Germany. The pair rose from an intraday low of 1.2088 to a high of 1.2140.

EUR/USD price action

German sentiment improves

The German business sentiment improved in February as the government rolled out its large scale vaccination program. According to the ifo Institute, the business climate increased from 90.3 in January to 92.4 in February. This increase was better than the median estimate of 90.5.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

In the same period, the current assessment improved from 89.2 to 90.6, which was also better than the estimated 89.0. Similarly, business expectations increased from 91.5 to 94.2. 

Notably, the manufacturing sentiment jumped to the highest level since 2018. This was in line with the flash manufacturing PMI data released on Friday. The data revealed that the German manufacturing PMI increased to 60.6, beating the median estimate of 56.5. 

The service and trade industries continued to do well as the government eased some of the earlier lockdowns. 

However, the data came at a time when the government has started to warn about the rising number of coronavirus cases in the country. 

The EUR/USD is also reacting to the upcoming debate about the $1.9 trillion package proposed by Joe Biden. Democrats have vowed to push through the package without support from Republicans who oppose some of its provisions. For example, many Republican leaders and some Democrats oppose the $15 federal minimum wage.

The stimulus package is seen as both bearish and bullish for the US dollar. It is bearish for the currency because it will lead to more money supply, which will devalue the currency. On the other hand, it is bullish for the dollar because, in theory, it will lead to a quicker economic recovery and force the Fed to hike interest rates earlier than expected.

EUR/USD technical outlook

EUR/USD technical chart

The four-hour chart shows that the EUR/USD price reached a high of 1.2170 last week. It then pared-back these gains and dropped to 1.2020. The pair is approaching the 50% Fibonacci retracement level and the 25-day and 50-day weighted moving averages. It is also a few pips below last week’s high of 1.2170. The pair also formed a bullish flag pattern, which as you can find in our free forex course, is usually a bullish signal. Therefore, the pair will likely continue rising as bulls target the next resistance at 1.2170.