EUR/USD: May correct lower on the day – OCBC

FXStreet Insights Team FXStreet

Euro (EUR) continued to hold on to gains above 1.09 handle vs US Dollar (USD) on prospects of a peace deal in Ukraine, potential ECB pause (in Apr) and hopes of large German spending. EUR was last seen trading at 1.0948 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Pace of rise may moderate

"The Bundestag will vote later today on whether to take the brakes off defence spending, paving the way for a jump in defence-related investments. The proposal being voted is that any spending on defence that amounts to more than 1% of Germany's GDP would no longer be subject to a limit on borrowing (currently this debt ceiling has been fixed at 0.35% of GDP). The vote requires a 2/3 majority to pass under the current Bundestag and it appears to have a higher chance of passing this under the current Bundestag."

"The new parliament convenes on 25 Mar and it may be challenging to pass as both AfD party and far-left Die Linke party have already expressed their decision to vote against it. It is important as other European countries will be watching if this proposal passes as any slip-up will have an implication on European Commission Ursula’s plan for EUR800bn ReArm Europe Fund. Bundestag will also vote on the €500 billion ($528 billion) infrastructure fund to invest in priorities such as transportation, energy grids and housing."

"Daily momentum is bullish but shows signs of slowing while RSI show signs of turning lower from overbought conditions. Pace of rise may moderate. Support at 1.0820 (61.8% fibo retracement of Sep high to Jan low), 1.0700/20 levels (200 DMA, 50% fibo). Resistance at 1.0970 (76.4% fibo). We also keep a look out on the phone call between Trump and Putin over Ukraine ceasefire for potential implications on EUR and Gold."

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