Euro Slips On Disappointment For Merkel, May Be Topping Out
- The Euro slipped in the wake of Germany’s election results
- Angela Merkel’s CDU remains the biggest party but must form a new coalition
- The euroskeptic AfD scored big gains
The Euro slipped a little in early Asian trade Monday after Germany’s election showed surging support for a nationalist party and Chancellor Angela Merkel still in charge but under pressure to form a new coalition government.
Her Christian Democratic Union remains the largest single bloc but it scored its worst showing since 1949 while the right-wing, euroskeptic Alternative for Deutschland party made big gains. It came in third place. The CDU’s current coalition partners, the Social Democrats, said they would go into opposition after their support fell to a post-war low, leaving Merkel to build a new ruling grouping on uncertain foundations.
She has made it clear that she will not be inviting AfD to join her government.
EUR/USD stumbled but didn’t fall far as the results came in. This may be because Merkel remains clearly in power and, as the longest-serving leader of the Group of Seven, she is seen as a formidable coalition builder and perhaps the most “known quantity” in international affairs.
Still, it remains to be seen what effect the increased presence of AfD will have on German politics. The European Union is attempting to portray itself as strong and united in the wake of the Brexit vote and the burnishing of a skeptic party in its largest national player may have repercussions for the further political integration that the likes of French President Emmanuel Macron, among others, would like to see.
More broadly EUR/USD has enjoyed a long climb up from April’s lows as Eurozone economic data have improved and the US Dollar hand languished. Now however the pair appears to be topping out around current levels as US monetary policy remains clearly in tightening mode while the European Central Bank is moving much more gingerly to wind back its own stimulus.
The pair appears to have made a “lower high” on September 20 last week when it topped out at 1.1988. That was below the previous peak which was September 8’s 1.2061.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.