EUR/USD: Risk-off and political uncertainty in Germany may keep EUR under pressure

  • The Shanghai Composite index fell 1 percent in Asia.
  • German SPD leader gave Merkel an ultimatum after state vote losses.
  • The USD may remain bid on risk aversion and political uncertainty in Germany could keep the EUR under pressure.

The EUR/USD picked up a bid on Friday, courtesy of broad-based losses in the greenback.

However, the technical setup still remains bearish as 5, 10, and 21-day exponential moving averages (EMAs) are trending south. The 14-day relative strength index (RSI) and the MACD remain biased toward the bears.

Further, the stock markets may remain on the defensive today, keeping the greenback well bid, as the Shanghai Composite fell 1 percent in Asia and the USD/CNH is looking north.

What's more, German Chancellor Merkel and her governing party allies lost significant support in Hesse elections while the Greens' share of the vote doubled. Merkel's ally blamed bitter infighting in Berlin for massive losses to both the chancellor's conservative party and the center-left and has threatened to quit the coalition.

This is bad news for the common currency as Merkel's weakness at home may limit her capacity to negotiate a Brexit deal and tackle the Italian budget crisis.

The only factor that could put a bid under the EUR/USD is a sustained risk aversion in the US stocks, which could force markets to scale back the expectations of Fed tightening.

EUR/USD Technical Levels

Resistance: 1.1411 (5-day EMA), 1.1444 (10-day EMA), 1.1464 (Oct. 3 low)

Support: 1.1336 (Friday's low), 1.13 (August low), 1.1187 (61.8% Fib R of 1.0341/1.2556)

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