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The euro has gained ground for a second straight day and broke above the symbolic 1.10 line before retreating.

German economic sentiment slides

German ZEW Economic Sentiment took a plunge in March, falling from 54.3 to -39.3. The massive decline of 93.6 points was the sharpest on record. The survey of financial experts shows that expectations that Germany will be hit by a recession. The war in e and the sanctions slapped on  have clouded the economic outlook and the survey also showed a huge jump in inflation expectations. Eurozone ZEW Economic Sentiment also tumbled, falling from 48.6 points to -38.7 points.

The euro is particularly sensitive to war in e, due to the eurozone’s geographic proximity as well as its dependence on  for energy supplies. Negotiations between e and  remain deadlocked, but any tangible progress towards a ceasefire would revive risk appetite and provide a boost to the euro.

Investors are keeping an eye on the FOMC meeting on Wednesday. A quarter-point rise is a virtual certainty and a hawkish rate statement could give a boost to the dollar. US Treasury yields have been rising, reflecting market expectations that the upcoming meeting will signal the lift-off for a series of rate hikes in the coming months. The 10-year yield has broken above the 2% line and is currently at 2.10%. The markets have priced in six or seven rate hikes this year, but there are strong reasons in favor of scaling back this projection. The war in e has caused massive uncertainty in the markets and the Fed would prefer not to make aggressive moves in such a fluid situation. As well, the surge in oil has raised worries about stagflation, so the Fed will have to be doubly cautious about the pace of its tightening.

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EUR/USD Technical

• 1.0886 is the first line of support, followed by 1.0774


• There is resistance at 1.1089 and 1.1262