Currency Analyst since 2010

EUR/USD: watch German elections

This Sunday (Sept. 22) will be marked by German elections. This is an important even as its outcome could change the future of Germany and the euro zone.

According to the latest polls, Angela Merkel’s conservative lead has narrowed: the Chancellor and her conservative CDU/CSU coalition would receive 38% of votes, while the coalition’s junior partner, the Free Democrats (FDP), would get 6% of votes – all together that’s not enough for a majority in parliament. The main opposition social democrat party (the SPD) led by Peer Steinbrueck was supported by 28% of respondents, while the Green party had 8%. The challenge for EUR is that anti-euro Alternative fur Deutschland (AfD) party it the 5% threshold enough to gain a seat in parliament, the poll showed.

If the election results will repeat the polls, Merkel would likely return to serve a third time in office but could be forced into forming a “grand coalition” with her rival Steinbrueck and his center-left party. Some say that this broad coalition may be “more constructive and EUR-friendly”. However, other analysts predict the elections will likely mean “more of the same” in terms of Germany’s policies towards its debt-ridden southern euro zone neighbors.

The main opinion is that German election, Italian political problems, the talk about the need of a new bailout for Greece and the ECB’s easing bias will limit the gains of EUR/USD from here.

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