The European currency is troubled by the German politics

The Euro is plummeting against the USD on the two first days of the week. No statistics have been published yet – investors’ attention is totally focused on what is happening in Germany’s political life.

The main problem once again is that the country’s politicians have no political consensus. Angela Merkel’s party, the Christian Democratic Union of Germany, couldn’t form a governing coalition with the parties, which didn’t get enough parliamentary seats in Bundestag. Merkel’s plan was to strike a deal with three parties, but she failed to convince the “Greens”. This “door” is not completely closed and the CDU may yet find some “points of contact” here. However, there probably won’t be any consensus with the Free Democratic Party. The party leaders say that “people voted for them so that they could change something” and believe that it will be better not to have anything to do with the party in power at all than govern in a wrong way, and this decision is very unlikely to change.

Now, Merkel has either to ask Frank-Walter Steinmeier, the President of the Federal Republic of Germany, to appoint her to the Chancellor position or announce new parliamentary elections. Both scenarios don’t look very good. The first scenario implies that she will have to govern the minority (she doesn’t want it), and the second one suggests that re-voting after such short period of time since the previous elections is unlikely to have any different effect. Politicians need new ideas, but there aren’t any, that’s why the country’s population is so unwilling to respond to old political slogans.

By the way, there has never been a minority government in Germany. At the same time, the country needs a very stable government in order to deal with migration issues and a lot of other critical problems. Germany has about two weeks to bring the country’s political order to proper conditions; otherwise, there might be some disturbances among population and business.

The Euro’s reaction to this news was quite negative and the uptrend in the EUR/USD pair is not likely to continue until some positive information relating to the German political life appears.

EUR/USD 4H Chart
EUR/USD 4H Chart

From the technical point of view, the short-term movement of the EUR/USD pair may be described as an uptrend with a descending correction inside it. Probably, the correction is about to finish, because, after testing support levels of the rising and correctional channels, the price started moving to test the key resistance area of the descending channel. If the pair breaks the resistance level and fixes above it, the instrument may grow towards the current high at 1.1860 and the next targets may be near the resistance level of the current uptrend channel. One of the closest and important upside targets is 1.1940. However, the short-term decline may yet continue with a possible target at 1.1685.

Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.