EUR: German elections has provided a reality check on EZ political risks - ING
The EUR fallout from the German elections has been more significant than most may have anticipated – though understandable when considering the underlying implications, explains Viraj Patel, Research Analyst at ING.
Key Quotes
“Not only does it risk slowing down any Merkel-Macron attempts for a deeper EZ integration, we suspect the rise of the populist AFD party is likely to provide a reality check on the way investors view EZ political risks. Indeed, since the French elections, we’ve noted that the EUR may have been playing the role of a ‘political haven’ – especially when taking stock of the political risks plaguing the likes of other G4 currencies (namely USD and GBP). However, the return of the ‘populist voter’ in a European election is a reminder that political risks haven't completely abated for the euro – especially with the spectre of the possibly more contentious Italian elections looming in early 2018. This could well be a concern for medium-term real money investors (eg, reserve managers), while any waning EZ recovery sentiment could see a pause in the cyclical EUR upswing. While we see little fundamental reasons for EUR/USD moving lower, we note the pair risks breaking out of a head-and-shoulders pattern (support 1.1835/40) that might see a broader correction towards 1.16. A dovish Yellen may help to avoid this scenario.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
