EUR/USD Forecast: German fiscal stimulus may drive the next rise in the channel

Is Germany ready to abandon its balanced budget? European Central Bank President Mario Draghi has been urging the continent's largest economy and other countries to open their purse strings – and this may finally be happening, supporting the euro.

Reports out of Berlin suggest that officials are mulling ditching the strict "Schwarze null" policy as a recession is looming. The International Monetary Fund downgraded Germany's growth forecasts – once again. While the ZEW Economic Sentiment figure beat expectations, October's score of -22.8   is still the lowest since 2010. 

Fiscal stimulus raises the chances for stronger growth and alleviates pressure from the ECB to cut rates and add more stimulus. Allowing budget deficits would mark not only a policy change but also a cultural one – the German word Schuld means both guilt and debt. Markets will probably believe it only when they see it. 

Perhaps it will take a change of the guard to make it happen. See Euro-zone economy: New German government needed to spend and lift the euro

Brexit headlines have an impact beyond the UK. Hopes for a deal boosted EUR/USD on Tuesday, and Wednesday's fresh doubts are limiting the common currency's gains. While the euro's responses to Brexit news is minuscule in comparison to the pound's moves, developments are set to move EUR/USD at least until the end of the week. Both sides aim to clinch a deal by the EU Summit on Thursday and Friday. 

The trade war is far from over. Relations between the US and China have soured after Congress is advancing a law that would force the periodical examination of Hong Kong's preferential trade status. The bipartisan effort comes as protests in the city-state continue, and China's influence there grows. Beijing sees the bill as unacceptable.

Moreover, while China agreed to buy US agrifoods, it demands to remove some of the tariffs as a condition to reach the $50 billion target. Markets are worried about these developments, and the safe-haven US dollar is supported. 

A top-tier US indicator is due out today. September's Retail Sales report is expected to confirm that the US consumer continues to carry the US economy forward. The data feeds into Gross Domestic Product calculations for the third quarter and is closely watched by the Federal Reserve.

See US Retail Sales Preview: Stronger consumer sentiment may tilt consumption higher

Several Fed officials speak today. Investors are unsure if the bank is set to cut interest rates later this month. Both trade developments and economic indicators are in play. 

Overall, news from Germany, Brussels, trade, and US retail sales are set to dominate EUR/USD trading today.

EUR/USD Technical Analysis

EUR/USD continues trading in the upward channel and is moving toward uptrend support. Will it bounce from here? Momentum on the four-hour chart remains positive, and the currency pair holds above the 50, 100, and 200 Simple Moving Averages. 

Support awaits at 1.10, which had capped EUR/USD several times before it broke higher. Next, we find 1.0940, which provided support in early October, followed by 1.0905, which had the same role in late September. The 2019 low of 1.0879 is next. 

Resistance awaits at 1.1060, which capped euro/dollar twice in the past week. It is closely followed by 1.1075, which capped it in mid-September. Next, 1.1115 was the high point in September. It is followed by 1.1165.