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Yen and Franc May Extend Gains as German Politics Sour Sentiment

Yen and Franc May Extend Gains as German Politics Sour Sentiment

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Euro slumps as FDP blows up German coalition negotiations
  • NZ and US Dollars correct higher following Friday’s losses
  • Yen and Franc may extend gains amid continued risk aversion

The Euro underperformed in Asia Pacific trade following news that German coalition negotiations had broken down. The pro-business FDP party abandoned the talks, which would have produced a four-party ruling bloc led by Chancellor Angela Merkel. The anti-risk Yen and Swiss Franc rose as worries about political instability in the Eurozone’s largest economy weighed on market sentiment.

The New Zealand Dollar corrected cautiously higher having been battered amid risk aversion Friday after Special Counsel Robert Mueller subpoenaed the Trump campaign. The US Dollar also managed a tepid recovery after suffering the second consecutive week of losses amid ebbing confidence in the successful implementation oftax cuts that markets hoped would boost inflation and encourage Fed rate hikes.

Looking ahead, a pair of speeches from ECB President Mario Draghi headline an otherwise lackluster European economic calendar. With the near-term policy path already decided and likely to remain untouched at least through early 2018, markets will be most interested in what might happen if the economy deviates from baseline assumptions.

Risk trends might continue to hold sway however. FTSE 100 and S&P 500 futures are pointing decidedly lower before London and New York come online, hinting that the sour mood prevailing overnight is aiming to extend through the rest of the global trading day. On balance, that seems likely to continue pushing funding currencies like the Yen and Franc higher against their G10 counterparts.

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Asia Session

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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