28.04.202614:05 Forex Analysis & Reviews: Germany pushes back on €1.8tn EU budget

Meanwhile, as risk-on pressure gradually returns — driven by both the situation in the Middle East and central bank meetings — EU leaders held the first substantive discussion of another contentious issue: the bloc's next seven-year budget.

According to reports, the package proposed by the European Commission last year, totaling €1.8 trillion, threatens to reignite long-running disputes over spending priorities and who should pay. Historically, the burden has fallen largely on Germany, but these are clearly not the times to load another round of spending onto that country's shoulders.

Ahead of discussions held last week in Cyprus, wealthier EU member states, which are net contributors to the budget, renewed criticism of the proposed size. This budget will govern EU spending from 2028 through 2034. Donor countries voiced concerns about excessive spending and demanded firmer justification of planned outlays.

The Cyprus talks only highlighted deep divisions among member states about the bloc's fiscal future. On one side, the European Commission insists on substantial investment to tackle urgent challenges such as climate change, digital transformation, and security. On the other side, several of the bloc's most advanced economies express worry about the overall rise in spending and insist on tighter controls over financial flows.

The central sticking point remains the allocation of fiscal responsibility. Historically, Germany and other large eurozone economies have acted as the principal sponsors, but current economic realities and the need to support new priorities demand a fairer, more balanced approach. This is forcing a search for new financing models and a reassessment of established practices in order to ensure the EU's sustainability and development.

European officials also criticized the Commission's proposal to remove rebates granted to wealthier countries, such as Germany, the Netherlands, Sweden, Denmark, and Austria.

Another contentious proposal is to raise revenue via EU-level levies to help pay down bonds issued during the post-COVID recovery. French President Emmanuel Macron has argued that the EU debt accumulated during the COVID period should be refinanced and that the bloc should issue new debt — a position unacceptable to countries like Germany.

The Commission is also trying to reengineer the EU budget around priorities such as defense and boosting competitiveness. Given the persistent investment gap between the EU and the US, aligning the new program with the needs of the 21st century will likely be a core priority for the bloc.

Technical picture, EUR/USD

Regarding the current technical picture for EUR/USD, buyers should now consider how to take the 1.1730 level. Only this will allow a test of 1.1762. From there, a move to 1.1791 would be possible, but achieving that without support from major players will be rather difficult. The most distant target is the high at 1.1822. In the event of a decline only to around 1.1700, I expect serious action from large buyers. If there is no one there, it would be prudent to wait for a refresh of the low at 1.1670 or to open long positions from 1.1640.

Technical picture, GBP/USD

As for the current technical picture for GBP/USD, pound buyers need to take the nearest resistance at 1.3530. Only this will allow targeting 1.3550, above which a break will be rather difficult. The most distant target is the 1.3585 area. In the event of a decline, bears will try to seize control at 1.3500. If they succeed, a break of the range will deal a serious blow to bulls' positions and push GBP/USD toward the low at 1.3475, with the prospect of reaching 1.3445.