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Long-Term Risks for Euro from German Political Turmoil

Long-Term Risks for Euro from German Political Turmoil

Martin Essex, MSTA, Analyst

EURUSD talking points:

- The formation of a new coalition government in Germany is still far from certain.

- A setback would likely undermine the Euro despite the probable ending this year of the ECB’s bond-buying program.

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Euro to suffer if German political stalemate persists

A key date for Euro traders to note in their diaries is March 4: the day when we’ll know whether members of Germany’s Social Democratic Party (SPD) have voted in favor of a coalition with Chancellor Angela Merkel’s conservative bloc. If the vote is against, the Euro will likely sell off despite the support it is currently receiving from the prospect that the European Central Bank will this year end its asset purchase program designed to stimulate the Euro-Zone economy.

By coincidence, March 4 is also the date of the Italian general election, providing an additional layer of risk for the Euro, which coninues to march upwards against the US Dollar.

EURUSD Price Chart, Daily Timeframe (October 16, 2017 to February 15, 2018)

Long-Term Risks for Euro from German Political Turmoil

Chart by IG

The SPD’s 464,000 members will start voting in a postal ballot on February 20 on a government program agreed last week by the political rivals. Many oppose a deal, as do many in Merkel’s bloc, and failure to approve the agreement would likely result in the end of Merkel’s career and fresh elections that would continue the political uncertainty.

As for Italy, the election there could deliver many of the same problems facing Germany: the prospect of a fractious coalition or a lengthy stalemate leading to fresh elections.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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