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Euro Set to Consolidate Ahead of German Election, ZEW Beats Forecasts

Euro Set to Consolidate Ahead of German Election, ZEW Beats Forecasts

Martin Essex, MSTA,

Talking Points

- Traders in the Euro are likely to face a period of consolidation this week ahead of the German Federal Election on Sunday.

- Meanwhile the September ZEW index for Europe’s largest economy suggests continuing robust growth.

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The Euro looks set to hold around its current levels against other currencies this week ahead of the German Federal Election on Sunday, which will likely deliver another victory for Chancellor Angela Merkel’s conservative CDU/CSU Christian democrat political alliance.

However, the composition of the new government will likely be the main focus as Merkel seeks to strike a deal with either the SPD social democrats – her current “grand coalition” partners – or with the smaller Greens and liberal FDP free democrats.

The election will take place as the German economy continues to steam ahead. The latest German ZEW data for September, based on surveys of investors and financial market analysts, showed robust growth with both the current conditions index and the economic sentiment index coming in well above expectations. The former climbed to 87.9 from August’s 86.7, comfortably above the 86.3 predicted by economists. The later rose to 17.0 from 10.0, above the forecast 12.0.

This implies that EUR/USD could eventually make a sustained move above 1.20 if the US Federal Reserve is dovish at its meeting this week and the Euro-Zone data remain constructive. Note though that the ZEW economic sentiment index is strongly correlated with Germany’s DAX stock-market index and the ZEW report, while more timely, is less reliable than the purchasing managers’ indexes or the Ifo report.

Still though, the ZEW numbers suggest there has been little impact on the German economy from a strong Euro, which improved modestly against the US Dollar after the report, trading at 1.1987.

Chart: EUR/USD Five-Minute Timeframe (September 19, 2017)

Source: tradingview.com

--- Written by Martin Essex, Analyst and Editor

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

Follow Martin on Twitter @MartinSEssex

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