EUR/USD is consolidating after last week's 4.4% rally. We haven't seen anything like that since the early days of the Covid pandemic in March 2020. As we discussed Friday, the narrative of independent US and European stories stands to lift FX volatility, ING's FX analyst Chris Turner notes.

EUR/USD to consolidate in the 1.0770-1.0850 area

"Away from the peace discussions in Saudi Arabia this week, the focus will be on German CDU leader Friedrich Merz and his ability to build a coalition of the fiscal willing to get the EUR500bn infrastructure fund through the current parliament. He is currently in discussions with the Greens and reports suggest a vote could take place in the lower house Bundestag on 18 March, before the upper house Bundesrat seals the deal on the 21st. Headlines on whether the Greens are playing ball this week could trigger some volatility in the euro."

"In terms of European data, today sees the March Sentix Investor confidence survey. And with little other data this week, the focus will be back to European Central Bank speakers. Our house call is that the ECB will pause its easing cycle in April. But the market still prices 17bp of rate cuts for that meeting. Expect the doves and hawks to do battle in the press over the need for an April cut, with today's input coming from the hawkish Joachim Nagel in a speech at 14CET today."

"We favour a little EUR/USD consolidation in the 1.0770-1.0850 area at the start of the week and suspect that another leg higher will have to come from ECB speakers or significant progress in Saudi Arabia rather than the US macro/rate side."