Germans have gone to the polls, but the results of the federal election remain unclear, and the political picture could remain muddy for up to several months. Angela Merkel’s Christian Democrats (CDU) and the main opposition Social Democrats (SPD) are almost tied, which means that a third party will have to be included in order to form a coalition government. The most important takeaway for the financial markets is that Merkel, who is stepping down as Chancellor after 16 years, will remain in power until a new government is formed. The markets are happy to have Merkel stay on, and EUR/USD has shown movement since the election.
Merkel may help keep the euro and financial markets steady, but at some point soon she will be replaced. If the SDP forms the next government, Germany would take a significant step to the left, which could mean higher taxes and a less friendly stance towards big business. The business sector and investors are wishing the conservative CDU well, hoping that they can take the torch from Merkel and keep Germany firmly on its current fiscal and economic path. However, if the CDU finds itself on the outside when a new government is formed, the result could be a loss of confidence in Germany as well as the euro.
Over in the US, this week’s key release is third-quarter GDP later this week, with a forecast of 6.6%. This would be a repeat of growth in Q2 and would be a reliable indication that the recovery is continuing at a brisk clip. A strong GDP release will increase expectations that the Federal Reserve will hit the taper button by December, which could give the US dollar a boost.
- On the upside, EUR/USD faces resistance at 1.1757 and 1.1791
- There is weak support at 1.1685. Close by is the next support line at 1.1649
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