German “GroKo” In The Balance
IronFX | Jan 17, 2018 04:53AM ET
German “GroKo” in the balance
- The Berlin fraction of SPD voted against the deal for a new grand coalition (GroKo) partnership between the SPD, CDU and CSU to form a new German government, ahead of the Party’s conference on Sunday. Despite the fact that the Berlin fraction has only 23 delegates in the conference, it is indicative that the SPD base members may not be prepared to give a carte blanche to SPD leader for the revival of a grand coalition. SPD leader Martin Schulz stated that it is hard to predict the final result, however he is confident that the party will approve of the deal. The balance may tip decisively from the Nord Rhein Westfallen SPD fraction and the local chairman sounded optimistic that majority will support the plan. German media report that, should the conference reject the deal for a revival of the grand coalition, Schulz’s political carrier would end and Germany may be heading into new elections increasing the instability for Germany and Europe.
- The EUR/USD broke the 1.2230 (S1) support level yesterday, during the European morning however it rebounded and headed towards it again during the Asian morning today. We expect the pair to continue in sideways manner with the risks tilted to the down side. Any fundamental news regarding the German SPD party may influence the pair’s direction, as well as the release of Eurozone’s Inflation rate for December and US Industrial output for December later on, however with a weaker impact. Should the pair come under selling interest, it could break the 1.2230(S1) support level and aim for the 1.2100(S2) support zone. Should it on the other hand, come under buying interest, it could break the 1.2355 (R1) resistance level and aim for the 1.2495 (R2) resistance hurdle.
More sanctions for North Korea
- At a meeting in Vancouver, 20 nations decided to impose unilateral sanctions on North Korea, beyond those required from the UN, in order to exercise further pressure on the country to give up it’s nuclear ambitions. The US went even further, as to warn of a military action if Pyongyang did not chose the negotiating path. Japanese foreign minister Taro Kono stated that the world should not be naïve about North Korea’s recent charm offensive in engaging in negotiations with the South and that it is not a time to ease pressure. US president Trump and Chinese president Xi Jinping discussed the Korean issue over the phone on Monday and expressed hope for the prospects of the recent inter-Korean negotiations. As tensions rise, developments could adversely affect the US dollar and strengthen safe havens such as gold.
In today’s other economic events:
- We get Eurozone’s final inflation rate for December and US industrial production rate for December as well. The highlight of today’s economic activity would be Bank of Canada’s interest rate decision. Recent financial data favor a possible rate hike from BoC (ie. current inflation rate is slightly above BoC’s inflation target) and the market widely expects BoC to hike rates. Currently, Canadian Dollar Overnight Index Swaps imply a rate of 1.2149%, and suggesting that the probability of a rate hike of 25bps, is at 90.94%.
- USD/CAD yesterday had a sideways movement, slightly below the 1.2450 (R1) resistance level. We see the case for the pair to be in a bearish mood in expectance of a possible rate hike today by the Bank of Canada. It could be the case however that as the market expects the rate hike and has positioned itself accordingly in the past couple of days, the effect of a possible rate hike could be subdued somewhat. Should the bears have the upper hand, we could see the pair breaking the 1.2350 (S1) support level and aim for the 1.2250 (S2) support barrier. Should the bulls take the reins we expect the pair to break the 1.2450 (R1) resistance level and test the 1.2520 (R2) resistance area.
- As for speakers, Federal Reserve Bank of Chicago President Charles Evans and Federal Reserve Bank of Cleveland President Loretta Mester speak.
Get The News You Want
USD/CAD
Support: 1.2450(S1), 1.2520(S2), 1.2593(S3)
Resistance: 1.2350(R1), 1.2250(R2), 1.2100(R3)
EUR/USD
Support: 1.2230(S1), 1.2100(S2), 1.2000(S3)
Resistance: 1.2355(R1), 1.2495(R2), 1.2600(R3)
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