The coalition supporting the German government could prove to be unstable and dissolve, if the three parties do not find common ground on the immigration issue. German chancellor Merkel, accepted a two week’s ultimatum yesterday, practically to strike a new EU deal on immigration. The ultimatum was given by CSU, one of the ruling parties and if there is no agreement in the next EU summit, Germany’s government could destabilize, with wider repercussions on EU’s asylum policy. Further developments on the before mentioned matter could create further volatility for the common currency.
Media suggested that US secretary of commerce Wilbur Ross and EU trade commissioner Malmstrom will meet next week to discuss tariffs. In a telephone conversation yesterday, the EU official reiterated EU hopes to be exempted from the US steel and aluminum tariffs. US official Peter Navarro, stated yesterday that tariffs could be applied without triggering a trade war, while on other news Germany’s Chancellor Merkel expressed hopes for the talks on US tariffs. Should there be further positive headlines about the issue, USD could strengthen.
EUR/USD moved in a sideways manner yesterday with some bearish tendencies breaking the 1.2355 support line. We see the case for the pair to continue to trade in that manner today as the market seems to have started positioning itself ahead of next week’s FOMC meeting and the US industrial production data for February, due to be released today could support the USD. Should the bears have the upper hand we could see the pair breaking the 1.2230 support line. On the other hand should the bulls take the reins we could see the pair breaking the 1.2355 resistance line and hover above it.