EUR/USD looks to keep the upside going with eyes on German debt brake reform

Despite a more dour risk mood, the dollar is down in trading today with EUR/USD now seen up 0.2% to 1.0855. The pair is keeping the momentum from last week but buyers are still facing a key test against its 200-week moving average of 1.0865 this week. So, that’s the big level to watch out for before thinking about 1.1000 next.

As much as buyers want to keep the upside run going, it’s not only the dollar side of the equation that will matter this week.

The bigger focus might be on the US CPI report but equally important on the euro side of the equation is Germany’s plans for the debt brake reform. The negotiations among key parties will begin this week with the context laid out as per the following from last week:

“For such a proposal, it will require two-thirds majority to be approved. And the numbers making up that will have to be from both the Bundestag (lower house) and Bundesrat (upper house). In total, that translates to 489 out of 733 lawmakers. The current CDU and CSU alliance as well as the SPD can gather about 403 lawmakers. So, they will still need 86 more votes in their favour from the FDP and/or Greens.”

As mentioned then, the FDP continues to oppose any relaxation of the debt brake and so Merz will have to look to Greens for support in getting this done. But so far, there’s no major breakthrough yet. Over the weekend, Greens co-party leader Felix Banaszak said that “we are further away from an approval today than in the last few days”.

But according to Reuters, officials in Merz’s camp are rather relaxed on the matter in saying that “in the end, however, they will agree out of a sense of political responsibility because they themselves have always called for such a special fund”.

So far, the euro is also not sensing much fears of the Greens derailing the plans for the debt brake reform. But it is certainly a risk factor to be mindful of in the next week before we get to the planned vote on 18 March.

This article was written by Justin Low at www.forexlive.com.