EUR/USD Forecast: Euro set to rise on calm from German elections, Evergrande, data eyed
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UNLOCK OFFER- EUR/USD has kicked off the week with gains after the German elections came out as expected.
- The Evergrande crisis, Fed speakers and Durable Goods Orders are set to move markets.
- Monday's four-hour chart is showing that momentum is switching up.
Limbo is not necessarily a bad thing – at least when it comes to Germany's elections. The race to succeed long-serving Chancellor Angela Merkel has resulted in a fragmented parliament with finance minister Olaf Scholz leading the race to inherit the top job. The center-left candidate is moderate.
While markets would prefer the center-right CDU/CSU leader Armin Laschet to lead the country – there is still such a chance – the prospects for a three-way coalition prevent market-unfriendly scenarios. First and foremost, a coalition between Scholz's SDP, the Greens and the hard-left Die Linke is unfeasible as the seats in parliament do not add up to a majority.
Left-only coalition impossible:
Source: DW
Second, any coalition must include the business-friendly FDP, which could moderate any ambitious fiscal spending. The main scenario is an SPD-led alliance with the Greens and the FDP – "traffic light" and one led by the CDU/CSU bloc and with the same junior coalitions. The second scenario is dubbed a "Jamaica" coalition.
As both would be pro-European – the extreme-right AfD is banned by other parties and lost ground in these elections – markets will likely shrug off uncertainty about the exact composition of the government. Long negotiations mean Merkel stays on for longer.
Overall, the results are mostly as expected and provide hopes for a euro-positive coalition.
The safe-haven dollar will likely remain on the back foot as the Evergrande crisis gradually leaves the spotlight. China's second-largest property developer is unlikely to pay all its debt, but would probably squeeze in an orderly fashion. Authorities in Beijing seem to want to punish large indebted companies – but prevent a "Lehman moment," which would result in contagion.
In the US, investors feel comfortable with the Federal Reserve's upcoming tapering of bond buys announced last week. Fed members Lael Brainard, Charles Evans and John Williams will likely reiterate messages conveyed last week. Chair Jerome Powell testifies on Tuesday.
The Fed wins another round, but the endgame has not changed
US Durable Goods Orders data for August could rock markets amid mixed economic figures from the world's largest economy. The economic calendar is pointing to an increase, in line with robust retail sales but in contrast to weak jobs data.
US Durable Goods Orders August Preview: Retail Sales have led the way
Will the US default on its debt? If lawmakers do not raise the debt ceiling, this nightmare scenario would scare markets and boost the safe-haven dollar. However, previous episodes resulted in last-minute solutions. Later in the week, a vote is likely on the $3.5 trillion infrastructure bill.
All in all, EUR/USD has room to rise on Monday, underpinned by Germany's elections and the broad upbeat market mood.
EUR/USD Technical Analysis
Euro/dollar is trading above 1.17 and benefiting from upside momentum on the four-hour chart, a positive development. On the other hand, the currency pair still trades below the 50, 100 and 200 Simple Moving Averages.
Some resistance awaits at 1.1725, the daily high. It is followed by 1.1745, a line that separated ranges. Further above, 1.1790 and 1.1830 are eyed.
Support awaits at 1.17, a swing low from Friday. It is followed by 1.1680, the September low, and 1.1660.
More EUR/USD Weekly Forecast: Fears will continue to support the dollar
- EUR/USD has kicked off the week with gains after the German elections came out as expected.
- The Evergrande crisis, Fed speakers and Durable Goods Orders are set to move markets.
- Monday's four-hour chart is showing that momentum is switching up.
Limbo is not necessarily a bad thing – at least when it comes to Germany's elections. The race to succeed long-serving Chancellor Angela Merkel has resulted in a fragmented parliament with finance minister Olaf Scholz leading the race to inherit the top job. The center-left candidate is moderate.
While markets would prefer the center-right CDU/CSU leader Armin Laschet to lead the country – there is still such a chance – the prospects for a three-way coalition prevent market-unfriendly scenarios. First and foremost, a coalition between Scholz's SDP, the Greens and the hard-left Die Linke is unfeasible as the seats in parliament do not add up to a majority.
Left-only coalition impossible:
Source: DW
Second, any coalition must include the business-friendly FDP, which could moderate any ambitious fiscal spending. The main scenario is an SPD-led alliance with the Greens and the FDP – "traffic light" and one led by the CDU/CSU bloc and with the same junior coalitions. The second scenario is dubbed a "Jamaica" coalition.
As both would be pro-European – the extreme-right AfD is banned by other parties and lost ground in these elections – markets will likely shrug off uncertainty about the exact composition of the government. Long negotiations mean Merkel stays on for longer.
Overall, the results are mostly as expected and provide hopes for a euro-positive coalition.
The safe-haven dollar will likely remain on the back foot as the Evergrande crisis gradually leaves the spotlight. China's second-largest property developer is unlikely to pay all its debt, but would probably squeeze in an orderly fashion. Authorities in Beijing seem to want to punish large indebted companies – but prevent a "Lehman moment," which would result in contagion.
In the US, investors feel comfortable with the Federal Reserve's upcoming tapering of bond buys announced last week. Fed members Lael Brainard, Charles Evans and John Williams will likely reiterate messages conveyed last week. Chair Jerome Powell testifies on Tuesday.
The Fed wins another round, but the endgame has not changed
US Durable Goods Orders data for August could rock markets amid mixed economic figures from the world's largest economy. The economic calendar is pointing to an increase, in line with robust retail sales but in contrast to weak jobs data.
US Durable Goods Orders August Preview: Retail Sales have led the way
Will the US default on its debt? If lawmakers do not raise the debt ceiling, this nightmare scenario would scare markets and boost the safe-haven dollar. However, previous episodes resulted in last-minute solutions. Later in the week, a vote is likely on the $3.5 trillion infrastructure bill.
All in all, EUR/USD has room to rise on Monday, underpinned by Germany's elections and the broad upbeat market mood.
EUR/USD Technical Analysis
Euro/dollar is trading above 1.17 and benefiting from upside momentum on the four-hour chart, a positive development. On the other hand, the currency pair still trades below the 50, 100 and 200 Simple Moving Averages.
Some resistance awaits at 1.1725, the daily high. It is followed by 1.1745, a line that separated ranges. Further above, 1.1790 and 1.1830 are eyed.
Support awaits at 1.17, a swing low from Friday. It is followed by 1.1680, the September low, and 1.1660.
More EUR/USD Weekly Forecast: Fears will continue to support the dollar
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