Euro's Bullish Bias Fades Out On Germany's Election Results
MaiMarFX | Sep 25, 2017 07:43AM ET
The euro dropped in the aftermath of Germany’s election as the ballot results foreshadow a complex political-coalition building.
The single currency gapped lower against the U.S. dollar after Chancellor Angela Merkel won Germany’s election but is under pressure to form a new coalition government. Merkel’s CDU remains the biggest party but scored its worst result since 1949, a post-war low. On the other hand, the far-right, euro-skeptic AfD party came in third place and achieved a surprisingly strong result. While Merkel has made it clear that she will not be inviting AfD to join her government, the ballot results foreshadow a complex political coalition building. The euro first recovered some losses as Merkel remains clearly in power but it was unable to hold above the 1.19-barrier as markets digest the election results.
EUR/USD
While the pair appears to have lost some of its bullish momentum, it still trends within its recent price range between 1.21 and 1.18 and this sideways movement can still be considered as consolidation phase within an uptrend. The bullish bias fades out with a break below 1.1820. Euro bulls would need to push the pair significantly above 1.20 in order to brighten the short-term outlook.
U.K. Prime Minister Theresa May’s long-awaited speech last Friday provided nothing concrete on the Brexit theme. May was generally vague on detail and even failed to specify the sum that the U.K. would pay the EU as part of a divorce bill. Traders sold pounds in the wake of May’s speech while political uncertainty might argue for a weaker pound. Brexit talks will continue this week and while any progress should be positive for the pound sterling, we will also focus on the release of the UK GDP on Friday and a speech of Bank of England Governor Mark Carney who is scheduled to speak on Thursday. If there are any signs the BoE may tighten monetary policy at the November 2 meeting, the pound will rise.
GBP/USD
The cable trended slightly downwards but the overall uptrend still remains intact. If the pound breaks above 1.36 again, we see the chances in favor of a move towards 1.37. Below 1.3430, however, the pound could tumble towards lower supports at 1.3380 and 1.3330.
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This week the speaking docket is packed with policymakers' speeches including Federal Reserve Chair Janet Yellen, European Central Bank President Mario Draghi and BoE’s Carney who are all scheduled to speak throughout this week. If Fed policymakers confirm that they see another rate hike before year-end, the U.S. dollar could receive some boost. The priced-in probability for another Fed rate increase before year-end now stands at 63 percent, from previously 47 percent just a week ago.
ECB President Draghi is scheduled to speak today at 13:00 UTC in Brussels.
Apart from policymakers’ speeches, the U.S. GDP reading (Thursday), U.S. PCE inflation gauge and Eurozone Consumer Prices (Friday) will be in focus.
Here are our daily signal alerts:
EUR/USD
Long at 1.1970 SL 25 TP 15, 40
Short at 1.1910 SL 25 TP 30-35
GBP/USD
Long at 1.3575 SL 25 TP 20, 40
Short at 1.3480 SL 25 TP 20, 50
We wish you good trades and many pips!
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