German Elections: No Negative EUR Catalyst this weekend, but we remain bearish heading into Q4
Focus in Europe turns to politics as we approach German elections this coming Sunday. In their latest Macro Matters weekly, our economics team discusses likely outcomes and notes the most likely scenario remains a grand coalition formed by Chancellor Merkel’s CDU/CSU and the socialist SPD party, with a status quo (CDU/CSU + FDP) coalition also very possible. In either case, as we discuss in our weekly FX Plus publication, we don’t see major negative implications for the Euro, though we do see some risk that the passing of the German event risk allows market participants to focus on potentially more problematic developments in Portugal and Greece. The bigger risk to EURUSD remains the dovish message delivered by the ECB in early September. Euro gains in the aftermath of the FOMC meeting have not been matched by a commensurate move higher in EUR vs. US front-end rate differentials, and the latest move higher in EURUSD may increase the intensity of ECB dovishness at the next meeting. We remain bearish on EURUSD heading into Q4.
Read the full report: FX Daily
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