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EUR/USD soars towards 1.07, a 4-month high

• Trump trade tariff fears ease
• Germany relaxes fiscal rules
• EUR/USD heads towards its 200 SMA

EUR/USD is rising further on Wednesday, adding to yesterday's 1.4% rally. Investors sold out of the US dollar and bet that Donald Trump could find reason to roll back his own tariff threats.

US President Trump applied 25% tariffs on imported goods from Canada and Mexico on Tuesday and an additional 10% levy on China. The move sparked risk aversion, which played out mainly in the equity market. Investors also sold out of the dollar, fearing that Trump's policies could cause an economic downturn.

Still, commerce secretary Howard Lutnick's comments to Fox News that there could be a way to negotiate out of these tariffs have revived optimism that a pivot on this week's tariffs could already be in the works.

Elsewhere, the euro is also being boosted by Germany, which is relaxing fiscal rules to allow for higher defence spending. It will create an off-budget fund of €500 billion euros for infrastructure spending bund yields sharply higher. Optimism surrounding a potential peace deal between Russia and Ukraine is also lifting the EUR.

The eurozone economic calendar is quiet ahead of tomorrow's ECB rate decision. The central bank is expected to cut rates by another 25 basis points, taking the deposit rate to 2.5% from 2.75%. The move comes as inflation cooled to 2.4% in February and as the region faces growing recessionary risks. However, will the ECB start considering a pause?

Meanwhile, attention will be on U.S. economic data points ahead of Friday's nonfarm payroll report. Investors will watch for signs of economic weakness after consumer and business investment sentiment showed signs of cracking under the threat of a trade war.

US ISM services PMI is forecast to tick down slightly to 52.6 from 52.8, following the S&P Global services PMI tumble into contraction. ADP payrolls are expected to fall to 140k from 183k. The data comes ahead of Friday’s NFP report.
 

EUR/USD forecast – technical analysis

EUR/USD extended its rebound from the 50 SMA, rising above resistance at 1.06 to an almost four-month high. This, combined with the RSI above 50, keeps buyers focused on the 200 SMA at 1.0730.

Immediate support is at 1.06. However, a move below 1.0530 would negate the near-term uptrend.

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FTSE 100 rises as the mood improves ahead of BoE Bailey’s testimony & PMI data

• Historic fiscal shift in Germany to boost spending lifts stocks
• BoE Andrew Bailey testifies before the Treasury Select Committee
• FTSE 100 rises above 8800

The FTSE 100 is recovering on Wednesday, having fallen 1.3% in the previous session. The market mood has improved on optimism that Trump could still walk back his trade tariffs and after a historic fiscal shift in Germany to unlock hundreds of billions of euros for defense and infrastructure spending.

A strong rebound in banks, defence, and aerospace firms is driving the FTSE’s gains.

Attention will now turn to Bank of England Governor Andrew Bailey's testimony before the Treasury Select Committee, which could provide further clues about the outlook for UK interest rates. The Bank of England cut rates by 25 basis points to 4.5% in February; however, recent data has shown an uptick in inflation to a 10-month high of 3%.

Signs of caution from the Bank of England's governor could weigh on UK stocks, particularly housebuilders and retailers.

UK services PMI data is also due to be released. It is expected to confirm the preliminary reading of 51.1 in February, up from 50.8 in January.
 

FTSE 100 forecast - technical analysis

After recovering from the 8000 low on December 20, the FTSE 100 trended higher amid a series of higher highs and higher lows, reaching a record 8910. The price has eased slightly to current levels of 8800, but the uptrend remains intact.

It would take a move below 8615, the late February low, to create a lower low.

Buyers will need to rise above 8775, the mid-February high, to attack 8910 and fresh record highs.

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