Mind the German-US interest gap

This week, the focus is on the United States, where significant state budget deficits have led to parts of the federal administration being shut down since Wednesday, 1 October. To reopen the federal administration, Republicans and Democrats in Congress must reach an agreement on federal budget cuts. The Republican majority in Congress is so small that the budget cut proposal also requires the support of some Democrats. The stock and bond markets have reacted calmly to this, probably because it has become a recurring event the US Congress typically resolves following intense negotiations.

After stabilizing at the turn of the millennium, the US annual budget deficit gradually increased to around 6% of the country's GDP, though it peaked at 15% during the 2021–22 Covid pandemic. One reason President Trump is pressuring Fed Chairman Powell to lower the US interest rate is to minimize the interest paid on the growing federal debt. At the same time, Trump has wanted a weaker USD, probably partly to stimulate job creation in domestic industries.

The yield on German 10-year government bonds also rose significantly in Q3 2025, increasing from 2.64% to 2.94%. This occurred while as the yield on US 10-year government bonds fell from 4.26% to 4.14%. It is possible to trace a connection here, given that the US Purchasing Managers' Index (PMI) has trended downward in recent months (from levels exceeding those of the Eurozone), while the Eurozone PMI has trended upward (from lower levels).

EUR/USD has strengthened from 1.03 on December 31, 2024, to 1.17 on September 30, 2025. This corresponds to a weakening of the USD against the euro of some 12%. However, since 30 June 2025, when the EUR/USD exchange rate was 1.18, the USD has stopped weakening, and the currency pair has levelled off.  Given the narrowing interest rate spread between US and German ten-year government bond yields, we argue that the EUR/USD exchange rate should strengthen.

In summary, although German and European PMI figures and ten-year government bond yields have risen during the third quarter of 2025, this has not been reflected in the EUR/USD currency cross. Therefore, we believe that taking a long position in EUR/USD may be an interesting strategy. Furthermore, President Trump does not appear particularly interested in defending the USD as the world's leading currency.

Last week, President Trump threatened to impose sharply increased tariffs on pharmaceutical companies that do not move their production to the US. Meanwhile, tech companies have benefited from promised investments in each other, which are linked to artificial intelligence (AI) research and development (R&D) budgets.

On Wednesday, 1 October, the Swedish company Skistar will publish its interim report. The Chinese stock exchanges are closed on Wednesday. The macro agenda is dominated by the industrial purchasing managers' index in Japan, India, Russia, Sweden, Spain, France, Italy, Germany, the Eurozone, the UK and the US. In Japan, the Q3 Tankan report will be published. Germany will publish its VDMA machinery orders report for August. The Eurozone will publish its CPI for September. India, the world's fourth-largest economy by nominal GDP, will announce its policy rate. In the US, the ADP non-farm employment change for September, construction spending for August and weekly oil inventory figures (Department of Energy) are scheduled for release.

Volvo Cars will announce its September sales figures on Thursday, 2 October. Stock markets in mainland China will also be closed for trading on this day. Shortly before lunchtime, the Eurozone's August unemployment rate will be announced. In the United States, the calendar includes Challenger jobless claims for September, industrial orders for August and initial weekly jobless claims.

On Friday, 3 October, the macroeconomic calendar will focus on the release of September's PMI service figures from Japan, Russia, Sweden, Spain, Italy, France, Germany, the Eurozone, the UK and the US. France will publish its industrial production figures for August, and the Eurozone will publish its producer price index for the same month. The most important figure of the day will be released in the afternoon (European time): US non-farm payrolls. However, it is uncertain whether these statistics will be released, given that the US Federal Administration has recently shut down.

Is long DAX the bet to take?

The S&P 500 index remains in a firm uptrend, trading within an ascending channel and above all major moving averages, which highlights strong momentum. Support is found on the downside around 6,590, followed by 6,475. Meanwhile, resistance is found at 6,695 on the upside. However, the MACD indicator has turned cautious once again, suggesting that momentum is fading. A short-term consolidation or pullback is possible.

The NASDAQ-100 remains in a firm uptrend. It is trading within a rising channel and above all major moving averages, which confirms strong momentum. Key resistance is located near 24,760, while support sits at 24,200 and 23,945. However, MACD shows a bearish crossover, implying softening momentum. Therefore, a brief consolidation is possible.

The German DAX is consolidating and trading below the key resistance level of 23,922–24,000, with the next level of resistance at 24,550. Although momentum has faded, a recent bullish MACD crossover suggests the potential for an upward move. Support levels are at 23,645, 23,360 and 23,000 respectively.

The OMXS30 remains within an upward channel, sitting just below the resistance level of 2,670–2,690. The index is above all major moving averages, which reinforces the bullish structure, and the MACD has turned positive following a fresh bullish crossover. Short-term consolidation is evident, but sustained movement above 2,690 would confirm renewed upward movement. Downside risk appears contained above 2,620 and 2,570.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence