Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
Euro at Risk From Sunday’s German Coalition Vote

Euro at Risk From Sunday’s German Coalition Vote

What's on this page

Euro Talking Points:

- The possibility of a US government shutdown and next week’s ECB meeting are likely to determine the direction of EURUSD short-term.

- However, a key vote in Germany Sunday could also be important for the Euro at the start of next week’s trading.

Learn how to trade like an expert by reading our guide to the Traits of Successful Traders

New to forex and want to find out more about trading GBPUSD? Take a look at our Forex Trading Guides

German coalition talks and the Euro

This coming Sunday, Germany’s center-left Social Democratic Party will decide whether to join Chancellor Angela Merkel’s conservatives in a coalition to govern Europe’s largest economy. While that is likely to be a less important driver of EURUSD in the days ahead than the possibility of a US government shutdown or next week’s European Central Bank meeting, it will likely affect the pair even so.

The SPD is wary of joining Merkel’s Christian Democratic Union/Christian Social Union to form a new government and if it decides not to she will have few options. She could form a minority government relying on the support of opposition parties or call a new election – neither of which would likely be seen as good news for the Euro. Moreover, an SPD decision not to link up with the CDU/CSU would likely usher in a lengthy period of political uncertainty in Germany and could even result in Merkel’s replacement as the conservatives’ leader.

So far, Germany’s political problems have had little impact on the Euro, which has benefited from US Dollar weakness and, in the last few days, from the concerns about a possible US government shutdown. However, that could change if traders decide to factor political risk into the exchange rate.

EURUSD Price Chart One-Hour Timeframe (December 19, 2017 to January 19, 2018)

Chart by IG

ECB meeting in focus

This will all pose a problem for the rate-setters on the ECB’s Governing Council, who meet this coming Thursday. They are unlikely to change the ECB’s current market guidance on monetary policy just yet, perhaps not until March, but ECB President Mario Draghi could still drop a hint next week that the ECB’s pledge to keep buying bonds to boost the Euro-Zone may be dropped relatively soon.

That would imply that tighter monetary policy is on the way, and help support the Euro. It would be unwise to ignore Germany’s political problems nonetheless.

--- Written by Martin Essex, Analyst and Editor

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

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

DISCLOSURES