EUR / USD prices may be lower ahead of German elections

Basic Euro Forecast: Bearish

  • Undoubtedly, the major risk event for traders this week will be the meeting of monetary policy makers at the Federal Reserve, the Bank of England and the Bank of Japan. And their decisions will determine the course of currencies and other markets in the short term.
  • But even if it could take months for the coalition government to be established, next Sunday’s German federal elections will also be important.

Euro price downside risk, German elections approaching

Direction EUR / USDMay, like most markets, be decided this week by a decision by the Bank of Japan, the Bank of England, and especially the Federal Reserve Board of Governance monetary policy makers. That said EUR/U.S. dollar And Eurocross should also look at polls prior to Sunday’s German federal elections.

There is no clear winner. Indeed, no party wins the majority of votes, and the coalition can take a month or six to unite, during which time Chancellor Angela Merkel stays in the hotseat in the role of caretaker. .. Therefore, nothing drives the market.

However, towards the end of last week, the Social Democratic Party (SPD) on the left of the center was Merkel’s Conservative Christian Democratic Union (CDU) and its sister party, the Christian Social Union (CSU), 21.6%. Behind them were the Greens (16.1%), the Liberal Democratic Party (11.5%), the far-right option for Germany (11.3%), and the socialist left (6.3%).

Perhaps Merkel’s CDU / CSU has lost its position as it has decided to resign and has been superseded by the less popular Armin Laschet. In any case, it is more hawkish than SPD and is led by the fairly popular Olaf Scholz.

EUR / USD price chart, daily time frame (April 1st to September 16th, 2021)

EUR / USD chart

Source: IG (Click to see a larger image)

The CDU / CSU may be part of a coalition that will eventually be formed. But as negotiations proceed, it could be even worse for the euro if it seems likely that a coalition would form without them. DAX And the Bund in Germany. The two possibilities are SPD, the so-called “red-red-green” combination of left and green, or the combination of SPD, FDP and green “traffic light”.

1 week ahead: Ifo index, PMI, consumer confidence

Apart from politics, I’ll be pretty busy next week with economic data. The release will begin Wednesday with the Flash Eurozone Consumer Confidence Index in September. This is expected to reduce economists from -5.3 to -5.6. The next day, manufacturing, services and compound PMIs for the Eurozone and its constituent countries will be released, many of which are expected to be lower in September than in August. Finally, Friday brings Germany’s September Ifo Business Climate Index. This is expected to drop from 99.4 to 98.5.

Such numbers will reinforce the view that eurozone monetary policy remains ultra-loose for the foreseeable future. Another bearish factor for the euro.Soaring energy prices in Europe, carbon, electricity, especially Natural gas All prices are rising due to supply shortages. This will bring new headwinds to the eurozone economy as winter approaches.

Want to know more about EUR / USD and why you trade it?Please see this article

— By Martin Essex, Analyst

Please feel free to contact me @MartinSEssex on Twitter

EUR / USD prices may be lower ahead of German elections

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