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EUR/USD looks to German fiscal reform vote

EUR/USD is holding steady on Tuesday as investors look ahead to a key vote on the fiscal reform plans in Germany and ahead of German ZEW economic sentiment.

The conservative CDU CSU block, led by soon-to-be chancellor and election winner Friedrich Merz, is expected to secure the two-thirds parliamentary majority necessary to pass the proposed fiscal reform crucial to the German spending plans.

These reforms include exempting defense spending from debt limits and establishing a €500 billion infrastructure investment plan. The vote is expected to pass Germany's lower and upper houses, which could help support the euro higher. Higher spending could lift inflation and has resulted in the market reining in its ECB rate cut expectations this year to two more cuts.

On the data front, expectations are for sentiment to improve in March, rising to 48.1 up from 26 in February. Sentiment has improved in the weeks following the German elections and amid signs that the economy has bottomed out.

The U.S. dollar continues to hover around a five-month low after the OECD forecasts that President Trump's higher tariffs could drag down growth in the US while driving up inflation. Concerns over the economic outlook have weighed on the US dollar in recent weeks.

Attention is turning to tomorrow's FOMC rate decision. The Federal Reserve is expected to leave interest rates on hold at 4.25 to 4.5%. Investors will watch Federal Reserve chair Jerome Powell's comments closely regarding the economic and inflation outlook amid Trump's trade tariff policies.
 

EUR/USD forecast – technical analysis

EUR/USD's recovery from 1.0375 in early March has run into resistance at 1.0940, the November high, and is consolidating below this level. The RSI is still in overbought territory, so some consolidation or even a move lower could be on the cards.

Support is seen at 1.08 round number and last week’s low. Below here the 200 SMA comes into play,

Buyers will need to rise above 1.0940 to extend gains towards the 1.10 round number. Above here, 1.12 comes into focus.

FTSE 100 rises boosted by miners as Gold hits a record high

The FTSE 100 started higher on Tuesday amid optimism surrounding peace talks over Ukraine and as the US Federal Reserve's two-day meeting begins.

 U.S. stocks finished higher despite a 1% decline for the magnificent 7 tech stocks amid a 5% drop for Tesla and a 1.8% decline for Nvidia, whose CEO Jensen Huang gives a keynote speech today at Nvidia's GTC annual event.

Miners are doing the heavy lifting, boosted by Gold at record highs above $3000 and optimism surrounding China following upbeat data yesterday and Beijing’s pledge to lift domestic consumption to get the economy back on track.

Should the US broker a deal between Ukraine and Russia, this could be a significant step forward for both Europe and the UK. As sanctions are lifted, energy prices are likely to fall, which could boost corporate margins and ease pressure on households.

That said the breakdown of the ceasefire in Gaza and rising tensions in the Middle East are lifting oil prices and supporting oil majors.

Attention is now turning towards the BoE rate decision this week and Rachel Reeves’ Spring Statement next week. Rachel Reeve has pledged to bring government borrowing down but is facing dissent from colleagues opposed to cuts to welfare payments. Reeves could announce billions in spending cuts to meet her fiscal rule, which requires day-to-day spending to be covered by tax receipts.

Meanwhile, the BoE is expected to leave rates unchanged amid sticky inflation and contracting growth. This challenging outlook complicates the central bank's outlook for rate cuts, which the market expects in June and November.

In corporate news Close Brother swung into our first-half loss of 103.8 million, and Trustpilot increased its outlook and raised its share buyback programme.
 

FTSE forecast – technical analysis

The FTSE is extending its recovery from the 8460 March low, rising back above the 50 SMA, and is testing the rising trendline resistance at 8715.

Buyers will look to overcome this obstacle to test the 8800 round number and 8850, the February 13 high.

Immediate support can be seen at 8615, the February 26 swing low and the 50 SMA. Below here 8480, the May 2024 high comes into focus.

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