EUR/USD had struggled to secure a corporate break of over 1.0500 since last month, and you may now see it. The charts are certainly very interesting as they digest the results of the German election over the weekend.
EUR/USD Daily Chart
There's no major upset as Friedrich Merz's CDU/CSU Alliance can be celebrated and secured around 28.5% of the vote. It puts them in the position to lead the next government.
The far right also caused waves, with the AFD party securing 20.8% of the vote. It's their record, almost double their support from the previous election.
The biggest loser? That depends on current Prime Minister Olaf Scholz, Prime Minister SPD. This is the worst outcome of factions in federal elections. it hurts. Green is another notable standout, securing 11.6% of the vote, but a slight drop from previous shows.
So, how important is this all important to the Euro?
Well, that's now to negotiate a coalition and form the next government in Germany. Meltz's conservatives are clearly not going to team up with the far right, so only SPD and Green will leave as potential coalition partners.
The classics will be CDU/CSU and SPD alliances, but given the latter feet show, Merz might be looking for something more appealing. If so, that means calling for Green to join. That being said, there will be a considerable amount of compromise from all involved.
One important thing to keep in mind when looking at the Union is the views of each German language. Debt Brake.
That's the fiscal rule that limits government deficits and prohibits federal states from causing new debts. This is a rule that is largely done to ensure fiscal discipline.
Therefore, the CDU/CSU alliance is Debt Brake. They view it as an important mechanism for ensuring financial responsibility. With regard to the SPD, you can increase your spending because some lawmakers want reforms or want it to be temporarily suspended (during the community pandemic). And finally, Green has been calling for reform for a long time. Debt Brake To promote investment in environmental sustainability and infrastructure.
Putting it all together, there are no sizes that fit everything. So there are compromises that need to be conflicted.
But if Meltz wants support from other stakeholders, he has to find a bit of willingness to give. So that might be what the market wants.
in the case of Debt Brake Being changed or relaxed means more investment in infrastructure and a stronger driving force in green energy. Increased government spending is augmented growth and is good for businesses, and will help boost the outlook for the German economy.
The only problem is that sometimes they make a fuss about growing debt concerns. However, I argue that it would not really be a big deal as Germany holds one of the lowest debt-GDP ratios in the eurozone. At least not in the short term.
Essentially, professionals outweigh their weaknesses, especially given the background that the German economy itself has already been in a heated state since last year. So this gives hope that things may be better.
Returning to the EUR/USD chart above, it appears that buyers are settling for a breakout of over 1.0500. But is it a little too late?
Even with a break from here, there is immediate resistance from the 100-day moving average (red line). The key level is currently visible at 1.0547.
So buyers have to really do more to convince them that a stronger break is higher, and pushing above 1.0500 is just the starting point. Also, to break the 100-day moving average beyond this week, you will need a strong follow-through to turn this into a stronger trend.
