EUR

German elections: EUR/USD mildly lower as coalition talks begin

The SPD party led by Olaf Scholz won the foremost votes within the German election. Coalition talks will now happen . These negotiations are often lengthy. EURUSD trades mildly lower.
In line with the polls the SPD led by Olaf Scholz won the most important number of votes within the German elections. The SPD won 25.7% of the votes, whilst the CDU/CSU came an in depth second with 24.1%, the worst performance by the Conservatives in recent history.

The smaller parties, the Green Party and therefore the FDP won 14.8% and 11.5% respectively making it a successful night for the minorities.

The election results pave the way for coalition talks. There are several outcomes which could happen as a results of coalition talks. Olaf Scholz’s centre left social democrats will initially look to hunt a coalition with the Greens and therefore the FDP, within the so-called traffic signal coalition.

However, the CDU/CSU have also said that they decide to attempt to form a government with the FDP and therefore the Greens. This has been called the Jamaican coalition. So although the SPD’s narrowly won the election, the FDP and therefore the Greens could actually decide who will lead subsequent coalition government in Germany.

Coalition talks in 2017 dragged on for 6 months, many are going to be hoping that these talks are going to be quicker given the challenges that lie ahead. Whilst there are other coalition options, the traffic signal or the Jamaican coalition are considered a continuation of the established order in terms of fiscal and EU policies. There might be a small shift during a policy, particularly during a greener direction but broadly the result indicates continuity.

So far, the market’s reaction has been relatively muted. There are no surprises. The prospect of at three-way coalition prevents market unfriendly scenarios. The DAX has pushed higher and trades over 15600 thanks partially to likelihood of the business friendly FDP being included within the coalition.

Meanwhile the Euro has come under mild pressure, weighed down by the limbo as talks happen .

EUR/USD trades below its descending trendline dating back to early September. The RSI points to further losses whilst it remains out of oversold territory. Immediate support are often seen at 1.1680 last week’s low, before 1.1665 the August low. an opportunity below here could expose 1.16 A level last seen in November 2020. On the flip side, a give way 1.1750 the falling trendline and horizontal resistance could negate the near term down trend help the pair towards 1.1790 the 50 sma.

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