A Key week for the Euro

A Key week for the Euro

Germany is going to the elections shortly and its impact is already seen in the FX market as the Euro trades within a tight range since the beginning of the day. The result of this election is likely to be watched with very keen interest as it is the first election that is likely to be throw up a new leader other than the German strongwoman Angela Merkel. She has ruled Germany for the past 16 years and irrespective of the election results, she will be stepping down.

The main race is between her party CDU and the main opposition SPD with both neck and neck which means that a third party could play the kingmaker if these two parties are locked at the end of the results. CDU party is known to be friendly to big businesses and so the business sector and investors would be secretly hoping that the CDU wins and if this happens, it is likely to be a boost for the Euro now and in the long run as well.

But if the opposition SDP wins, then it could mean higher taxes and policies that may not be as friendly to big businesses and companies as in previous years. This could be a blow to the Euro, and we may see the currency sliding in case the opposition wins as Germany is the bed rock of the Euro economy at this point of time.

It is reliably learnt that Merkel would continue till the transition is smoothly completed and so with her at the helm at least for some more time, do not expect too much turbulence in the FX markets at least for a week or so but we will likely get a general indication of a trend once the election results are declared.

The other event that could influence the movement of the Euro and the USD are the economic news from the US and in this week, it is the US GDP and if it comes in as per expectations, it is likely that the Euro will not see much of an impact but if it comes in better than expected, then it would mean that the tapering is likely to happen as planned by December and the dollar would get strengthened very quickly.

The EUR/USD pair seems to be forming a short-term bottom which should protect the downside for now but once the German election results come in, then we could either see a bounce from the bottom or a complete breakdown which would be bad for the EUR/USD pair.

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