If You’re a Long-Term Euro Bull, Here’s Something to Worry About

Talking Points

- Germany’s center-left Social Democrats have taken the lead in the latest opinion poll, ahead of Chancellor Angela Merkel’s conservative Christian Democrats.

- That’s bad news for the Euro, even though the German Federal election is still six months away.

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With Euro traders’ attention focusing on the two rounds of France’s Presidential election in late April and early May, it might be too early to think about the German Federal election on September 24. But it might not be.

The opposition center-left Social Democratic Party (SPD) has just taken the lead in the latest opinion poll ahead of Chancellor Angela Merkel’s center-right Christian Democratic Union (CDU) and its Bavarian sister party the Christian Social Union (CSU). The poll by INSA, published in the Bild newspaper, gave the SPD a one-point lead over the CDU/CSU, with the former on 32% and the latter on 31%.

By comparison, the conservatives polled 41.5%, compared with the social democrats’ 25.7%, in the Federal election in September 2013 and opinion polls so far this year have shown them with a significant albeit falling lead.

The SPD’s recent transformation has followed the confirmation as its leader of Martin Schulz, the popular former President of the European Parliament, whose first real test will come this coming Sunday, when there is a regional election in the west German state of Saarland. An SPD victory could well erase some of the Euro’s recent gains, both near-term and as the Federal election approaches.

Chart: EUR/USD One-Hour Timeframe (March 15 – March 21)

Chart by IG

As is often the case in Continental Europe, coalitions will need to be built after the Federal election but the polls suggest that a “red-green” coalition of the SPD, the left-wing Die Linke party and the Greens could command a lead over a coalition of the CDU/CSU and the liberal Free Democratic Party.

Moreover, there could also be concerns for Euro bulls if, as expected, the far-right Alternative for Germany party enters the Saarland assembly for the first time after the Sunday vote there.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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