Collapse of German coalition talks is only short-term shock for EUR/USD

Mario Blascak, PhD Independent Analyst

German coalition talks collapsing is definitely something new in the current era of the European politics. For last 12 years, German politics were under the pragmatic leadership of Angela Merkel. No ideology, no blame, no problem…

So for the markets, it is completely something new when political parties in Germany conducting coalition talks behind the closed doors abruptly say NO.

Especially when the one saying “No” is a junior possible coalition partner.

There is no problem with any possible scenario. In fact, countries like Belgium, Holland and Czech Republic have a long tradition of forming a government for ages and nothing happened to countries’ economies. In terms of currency reaction, the move downwards has been a bit unjustified and it is likely that the EUR/USD will correct towards $1.1800 soon.

The short-term support is provided by trendline connecting the November's lows on the way from $1.1550 to $1.1860.

This is not to diminish the importance of German politics on European ground. Without Germany, December EU summit won’t decide anything and it will be just a ceremonial high profile meeting of the European political elite.

That is in fact bad news for the UK that is eagerly working on the second version of the Brexit bill to set things up for deadlocked Brexit negotiations. On Monday, the UK government members will consider Brexit bill for leaving the EU at a meeting of the Brexit cabinet sub-committee on Monday.

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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