As EURUSD Rises, Keep an Eye on German Coalition Talks
EUR Talking Points:
- EURUSD climbed for a second successive day Thursday as ECB minutes suggested its Euro-Zone stimulus program may be tapered earlier than previously expected.
- However, traders in the pair should prepare for a possible setback if talks on forming a new German coalition government fail.
Check out our new Trading Forecast for the Euro – it’s free and has been updated for the first quarter of 2018
EURUSD strength may be temporary
EURUSD strengthened for the second successive day Thursday, boosted by a hawkish set of minutes of the last meeting of the European Central Bank’s Governing Council. The markets interpreted the minutes as meaning that the ECB could start reducing its monetary stimulus program earlier than previously expected.
In response, the Euro rose, adding to its gains Wednesday on a report – later dismissed – that China may reduce or halt altogether its buying of US Treasury notes and bonds. That weakened the US Dollar on a flight to haven currencies despite the support a rise in Treasury yields would normally provide.
EUR/USD Price Chart Five-Minute Timeframe (January 10-11, 2018)
EUR to suffer if talks fail
China’s denial of a policy change towards US Treasuries strengthened USD temporarily but EURUSD could weaken much further if talks between Germany’s two main political groupings fail. Chancellor Angela Merkel’s conservative CDU/CSU group is currently in talks with the center-left SPD about forming a new “grand coalition” government, and the negotiations are certain to be difficult.
She is seen as a consummate dealmaker so the chances are that she will succeed. However, failure would mean a loss of authority, the possibility of a minority government or even new elections. All would be seen as bad news for the Euro-Zone, and therefore negative for the EURUSD pair.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at email@example.com
Follow Martin on Twitter @MartinSEssex
For help to trade profitably, check out the IG Client Sentiment data
And you can learn more by listening to our regular trading webinars; here’s a list of what’s coming up
Check out our Trading Guides: Several new ones are now available including Forex for Beginners, Building Confidence and Traits of Successful Traders
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.