Market participants anticipate that Merz's government will bring an end to the era of strict fiscal policy to support Germany's struggling economy, which was once the growth engine of Europe. The political stance of the new administration is seen as crucial, as the region's largest economy faces growth stagnation, while US President Donald Trump threatens a global trade war.

Expectations have been fueled by Merz's promises of infrastructure investments and corporate tax cuts, measures aimed at stimulating domestic demand and boosting the competitiveness of German companies in the global market. However, these initiatives could also lead to higher public debt levels, especially amid global economic uncertainty.

A key issue remains how Merz's government will balance economic stimulus with financial stability. Proposed measures such as labor market reforms and bureaucratic simplifications are also in focus, as they could have a significant impact on Germany's long-term growth.

Meanwhile, the threat of trade wars from the US adds further uncertainty. As a major exporter, particularly in the automotive sector, Germany is highly vulnerable to protectionist policies. The Merz administration will need to find ways to protect German businesses on the global stage, potentially through alternative trade agreements and strengthening economic ties with other partners.

At least part of the euro's rally has been driven by expectations that Merz will form a government quickly, contrary to market concerns before the election.

Technical Outlook for EUR/USD

At this stage, EUR/USD buyers must focus on breaking above 1.0530. Achieving this would allow for a test of 1.0560, and from there, an attempt to reach 1.0590. However, doing so without support from large market players will be challenging. The ultimate target would be the 1.0630 high.

In case of a decline, major buyers are expected to act around 1.0490. If there is no activity at this level, waiting for a retest of the 1.0450 low or considering long positions from 1.0400 may be preferable.

Technical Outlook for GBP/USD

For GBP/USD buyers, breaking the nearest resistance at 1.2660 is crucial. Only then will the pair have a chance to target 1.2700, beyond which further movement would be challenging. The ultimate target lies at 1.2735.

In case of a decline, sellers will attempt to regain control at 1.2630. If they succeed, a breakthrough of this range could significantly damage bullish positions, pushing GBP/USD down to the 1.2590 low with a potential further drop to 1.2560.