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Asia AM Digest: Euro Gains as SPD Backs Merkel Coalition Talks

Asia AM Digest: Euro Gains as SPD Backs Merkel Coalition Talks

Research, Research Team


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The US Dollar is trading broadly lower to start the trading week as lawmakers in Washington DC struggle to break a deadlock ending a government shutdown that began in the absence of a budget deal on Friday. The Euro is leading the way higher after Germany’s center-left Social Democrats (SPD) voted to hold formal coalition talks with Angela Merkel and her center-right CSU/CDU block. That may pave the way for a “grand coalition” that ends months of uncertainty after an inconclusive election late last year.

The Canadian Dollar was a standout loser Friday after US officials signaled they were losing patience with a lack of progress in talks aimed at renegotiating the NAFTA free trade agreement. The Japanese Yen traded higher in what might have reflected the unwinding of carry trade positions funded in the perennially low-yielding currency as traders de-risked portfolios ahead of the weekend. That may have reflected worries about the aforementioned SPD vote as well as the US budget impasse.

DailyFX Economic Calendar: Asia Pacific (all times in GMT)

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IG Client Sentiment Index Chart of the Day: EUR/GBP

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Retail trader data shows 46.8% of traders are net-long EUR/GBP, with the ratio of traders short to long at 1.14 to 1. In fact, traders have remained net-short since Dec 19 when EUR/GBP traded near 0.88264; price has moved 0.1% higher since then. The number of traders net-long is 4.4% higher than yesterday and 21.2% higher from last week, while the number of traders net-short is 0.7% lower than yesterday and 9.9% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/GBP price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading:

  1. Weekly Forecast: Event Risk Ramps Up from US GDP to ECB Rate Decision by DailyFX Research Team
  2. Why EUR/JPY May be the Most Loaded FX Pair In the Week Ahead by John Kicklighter, Chief Currency Strategist
  3. A Look Inside Bitcoin Traders’ Minds During the Cryptocurrency Crash by Christopher Vecchio, CFA, Sr. Currency Strategist
  4. EUR/USD Weekly Technical Outlook: Euro May Struggle More Before Higher by Paul Robinson, Market Analyst
  5. US Government Fears, US and UK GDP, ECB and BoJ Ahead by John Kicklighter, Chief Currency Strategist

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