EUR/USD trades with caution as investors look for German coalition talks

• EUR/USD remains on its toes around 1.0450 as investors expect the new German coalition government won't be able to revive economic growth.
• The leader of CDU Frederich Merz is unlikely to join hands with Far-Right.
• US President Trump confirms that the plan of imposing 25% tariffs on Canada and Mexico is still on.

EUR/USD trades cautiously above the key support of 1.0450 in European trading hours on Tuesday. The major currency pair wobbles as investors await the outcome of the victorious Frederich Merz-led-conservatives' negotiations with other parties to form a coalition government. 

The leader of the Christian Democratic Union of Germany (CDU) Frederich Merz - likely the next German Chancellor - is expected to face heated negotiations to fulfill his economic agenda of loosening the 'debt brake' rule to increase the limit of the budget deficit, which is currently 0.35% of the Gross Domestic Product (GDP). The most likely scenario is Conservatives forming a coalition government with the Social Democratic Party (SPD) of current Chancellor Olaf Scholz. Merz is unlikely to invite Alice Weidel's Alliance for Germany (AFD), also known as Far-Right, to form a government.

Market participants doubt that Frederich Merz will uplift the fractured German economy as a coalition government historically results in an obstructive parliament across the globe. This led to investors liquidating their longs on the Euro (EUR) in the North American session on Monday after strong initial gains. The German economy has been contracting for the last two years, and its outlook is weak due to fears of potential tariffs by United States (US) President Donald Trump.

ECB policymaker and Bundesbank President Joachim Nagel said last week that our "strong export orientation" makes us "particularly vulnerable" to potential Trump tariffs.

On the economic front, Eurozone Q4 Negotiated Wage Rates data came in at 4.12%, down from 5.43% in the previous quarter. Investors now await Isabel Schnabel, member of the European Central Bank (ECB) Executive Board, who delivers a keynote speech at Bank of England's Annual Research Conference, "The Future of the Central Bank Balance Sheet," in London, United Kingdom, at 13:00 GMT.

Daily digest market movers: EUR/USD faces pressure as US Dollar steadies

• EUR/USD is also facing pressure from renewed fears of a global trade war. On Monday, US President Donald Trump said that his plans of imposing 25% tariffs on Canada and Mexico on March 4, which were delayed by a month after both nations agreed to tighten border activities, are still on. "The tariffs are going forward on time, on schedule," Trump said from the White House.
• Renewed fears of tariffs by Donald Trump on his North American partners have resulted in some stability in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, ticks lower on Tuesday but had a strong reversal move to near 106.75 on Monday after posting a fresh 11-week low near 106.10 the same day.
• On the economic front, US Durable Goods Orders and the Personal Consumption Expenditures Price Index (PCE) data for January will be the next major trigger for the US Dollar, which will be released on Thursday and Friday, respectively. Investors will pay close attention to the PCE inflation data, which is the Federal Reserve's (Fed) preferred inflation gauge, as some officials have shown concerns over the stalling disinflation trend lately.
• In Tuesday's session, investors will focus on the US Consumer Confidence data for February, which will be released at 15:00 GMT.

Technical Analysis: EUR/USD holds above 1.0450

EUR/USD trades with caution above Monday's low of 1.0450 in Tuesday's European session. The major currency pair continues to struggle to have a decisive breakout above the psychological resistance of 1.0500. The 50-day Exponential Moving Average (EMA) continues to support the major currency pair around 1.0440.

The 14-day Relative Strength Index (RSI) wobbles just below 60.00. A bullish momentum would activate if the RSI (14) manages to sustain above that level.

Looking down, the February 10 low of 1.0285 will act as the major support zone for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.