The EUR/USD pair continues to struggle with a consistent break of the 1.0500 mark. Recent German political developments did not provide the necessary momentum for a breakthrough, with the euro’s gains diminishing by European trading time.

The CDU/CSU alliance aims to collaborate with the SPD for a centrist coalition, despite the SPD’s poor election performance. This coalition’s formation, excluding the Greens, diminishes hopes for meaningful debt reform.

Currently, the pair remains around its pre-weekend levels. While buyers are active, key support is found at 1.0460-62, which maintains a bullish sentiment in the near term.

Short-lived rallies above 1.0500 continue to attract selling pressure, making sustained upside movement difficult. Each attempt to push beyond this barrier has struggled to hold, suggesting sellers remain firmly in control at higher levels. Buyers are present, but their strength appears limited, with upward moves meeting resistance before gaining traction. This lack of follow-through makes it clear that confidence in prolonged euro gains remains fragile.

German politics, while always an essential factor for euro sentiment, failed to provide the push some had hoped for. The CDU/CSU and SPD coalition discussions reaffirm a centrist path, yet any hopes for debt reform have faded with the Greens’ exclusion. Without their influence, policies that might have supported fiscal tightening or broad structural changes now seem unlikely. This removes one potential driver for long-term euro strength and keeps traders cautious about overly optimistic positioning.

With price action remaining stable near pre-weekend levels, the pair continues to respect 1.0460-62 as a support area. This zone has held well, encouraging dip-buying and preventing sharper declines. While this gives buyers a foothold, their ability to generate momentum remains untested. The hesitation to push higher signals that broader sentiment leans towards neutrality rather than outright optimism.

Looking ahead, the relationship between European yields and US interest rate expectations will play a defining role. Bond markets offer a clear indication of investor positioning, and recent movements suggest that US yields still dominate market direction. Federal Reserve officials have continued to highlight their focus on inflation data, reinforcing a patient stance. If incoming reports show persistent price pressures, expectations for rate cuts will be pushed further out, providing the US dollar with renewed strength. Any shift here would make it even harder for the euro to overcome resistance barriers.

For now, traders must watch whether buyers can maintain control above support levels without quick exhaustion. If selling pressure returns swiftly, forcing a retest of recent lows, downside risks will come back into focus. Alternately, a steady consolidation could indicate that sellers are losing short-term conviction, giving price action the chance to stabilise before the next move unfolds. Timing and reaction to upcoming data will set the tone, especially with market participants remaining focused on signs of divergence between central bank expectations.