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EUR/USD Soars to a Three-Year High on German Coalition Breakthrough

EUR/USD Soars to a Three-Year High on German Coalition Breakthrough

Nick Cawley, Strategist

EUR Talking Points

- German coalition breakthrough sends EUR/USD soaring.

- The rally comes a day after hawkish ECB minutes hint that central bank guidance could be moved forward.

Check out our newTrading Forecasts - they’re free and have been updated for the first quarter of 2018.

EUR Boosted by German Political Breakthrough

A breakthrough in German coalition talks has sent EUR/USD spinning higher, hitting levels last seen at the end of 2014, as investors take a positive view on renewed German stability after last September’s inconclusive elections cast a shadow over the single currency. And in further good news for the Euro-Zone, the coalition said that it will commit to strengthening the single-bloc alongside France and boost the German contribution to the EU budget.

ECB Hawkish Forward Guidance Talk

The positive news follows on from Thursday’s hawkish ECB minutes. The central bank said that forward guidance on monetary policy may need to be moved forward this year, if inflation took hold, despite ongoing quantitative easing. The change in language underpinned a strong EUR and sent the US Dollar Index (DXY) to a multi-week low. DXY has fallen further after today’s announcement and now trades nears its three-year low.

EUR/USD could also get another uplift today with two heavyweight US numbers – inflation and retail sales - on the calendar. Below par prints in both could weaken the US dollar even further, according to DailyFX analyst David Song.

EUR/USD Price Chart Monthly Timeframe (March 2013 - January 12, 2018)

EUR/USD Soars to a Three-Year High on German Coalition Breakthrough

Chart by IG

EUR/USD Mixed to Bullish Bias according to Sentiment Data

IG Client Sentiment data show 33.6% of traders are net-long EURUSD with the ratio of traders short to long at 1.98 to 1. The number of traders net-long is 11.8% lower than yesterday and 15.1% higher from last week, while the number of traders net-short is 6.2% higher than yesterday and 19.1% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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

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