EUR: Uncertainty and concessions should weigh - Westpac

Tim Riddell, Research Analyst at Westpac, explains that another Merkel-led coalition may be in place after Germany’s federal elections, but it has not been as simple as anticipated.

Key Quotes

“Both CDU/CSU and SDP lost seats to minor parties and, disconcertingly, AfD gained their first Bundestag representation. The likely outcome is a CDU/CSU/ FDP/Greens coalition, but it may take months (in 2013 it took 3 months) to conclude. FDP are business-friendly but against further EU integration. Greens may offset business positives. A swing against migration is likely to counter AfD’s rise. Uncertainty and concessions should weigh on EUR.”

“Draghi has indicated a relatively dovish tapering while EU officials repeated the damping impact of EUR strength on both inflation and growth. Core Eurozone survey data is finally moderating so the notably large long EUR positioning is unwinding. 1.15 area should provide some EUR/USD support, while a cap on EUR strength appears to be in place.”