Germany’s Chancellor-to-be, Friedrich Merz, is facing obstacles to his plan to push through constitutional reforms to the debt brake before 25 March, when the new parliament is seated. Yesterday, the Green party – needed for the 2/3 majority – announced it would oppose the defence spending plan and requested greater environmental guarantees, ING’s FX analyst Francesco Pesole notes.
An exploration above 1.090 may be on the cards
“The euro dropped on the headline but quickly bounced back when it was reported that the Greens remain open to talks and CDU officials indicated optimism towards an agreement. The FX market continues to price in a best-case scenario for the euro, with the spending plan going ahead.”
“The eurozone calendar is light this week so developments in German politics and Ukraine-Russia peace talks will remain quite central. Still, EUR/USD should mostly be stirred by news coming from the US. As a secondary driver, ECB members are starting to deliver their post-meeting remarks. Yesterday, hawk Joachim Nagel said the ECB is not moving on ‘autopilot’ on cuts and it is hard to speculate on April’s move. We’ll hear from dovish-leaning Olli Rehn today and a plethora of other Governing Council members later this week.”
“We retain a preference for lower EUR/USD, but we may not be at the peak just yet as US domestic risks linger and the euro’s fundamentals have improved. An exploration above 1.090 may be on the cards, but 1.070 remains the most reasonable target for a month ahead, in our view.”
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