The euro-dollar pair is now trading in a wide price range, reacting to a contradictory fundamental background. Having collapsed at the beginning of the European session to the establishment of the 17th figure, within a few hours the price recovered by almost 100 points. Such unusual volatility on a Monday is due exclusively to political events, as the economic calendar is almost empty today.
The focus of traders is Germany. The German parliamentary elections, which took place at the end of September, already exerted pressure on the European currency. The results of the elections excited the market, as the party of the incumbent Chancellor Angela Merkel showed the worst result in the last 20 years, despite a nominal victory.
In addition, the cause for anxiety was the exceptional result of the ultra-right party "Alternative for Germany". This political force populist sense gained 13% and thus took the "bronze" prinze. Such unexpected success of the right again reminded about the sentiments that are hovering in European countries. Anti-immigration rhetoric and Euro-integration skepticism is becoming more popular in the EU, and demand, as we know, makes way for an increase in supply.
In the context of the foreign exchange market, any political success of the ultra-right is a loss for the euro. Remember how the European currency reacted, when Le Pen began to gain popularity on the eve of the French presidential election. Or when the party "Five Stars" was gaining momentum in Italy. I'm not talking about the Greek "Golden Dawn" or British UKIP. All these political forces declare national isolation and disintegration processes, and the German "Alternative" is no exception.
However, the impressive result of the German ultra-right only temporarily weakened the European currency. The market soon became convinced that the parliamentary coalition would be created without their participation, therefore, the rightists would not be able to influence any significant political decisions. After that, the topic of the elections in Germany faded into the background and it was soon forgotten.
But the events of recent days made markets worry about the fate of the German coalition once more: the market was shocked by the news that the Free Democratic Party refused to participate in further negotiations. The failure of the coalition talks (which lasted more than a month) increased the risk of repeated re-elections, and this fact exerted considerable pressure on the euro. It should be noted that immediately after the election, Merkel's former partners in the coalition (Social Democratic Party) announced the transition to the opposition. After that the chancellor had to consolidate the remaining forces - CDU/CSU, liberals (Free Democrats) and "Greens".
Thus, on the weekend, the foundation of the future coalition lost a significant link. Following the SVPD, the "Green" announced the withdrawal from the negotiation process. In Germany, the "clouds" of a serious political crisis thickened - in fact, in the case of re-elections, the result of the CDU/CSU could be even weaker, and the further scenario of the development of the event would be unpredictable. Similar prospects for the powerhouse of the European Union looked fatal, so the reaction of the euro was absolutely justified.
But the kaleidoscope of political events quickly changed the news picture. A few hours after the opening of the European session, it became known that the Free Democrats are still ready to support the minority government, "if there are good proposals." In other words, there is a banal political bargaining, a kind of blackmail on the part of the negotiators.
In the camp of the German opposition, there is also a certain competition, so the liberals are unlikely to give up the "good proposal" if Angela Merkel really voices it. In turn, political experts are considering another option - unification with the Social Democrats, who can "return" from the opposition. The third scenario (re-elections) will be implemented only in the most extreme case, if the resumed negotiations finally go into a remote corner.
Judging by the latest statements of some German politicians (in particular, FDP representative Marco Buschmann), this option is unlikely. Repeated elections are unprofitable for almost all major political "heavyweights". They are ready to bargain, bluff, threaten withdrawal and use other tools behind the scenes. But if the risk of new elections really becomes real, then a compromise will surely be found. The readiness of the FDP to re-engage in dialogue is a clear testimony to this.
The euro-dollar pair will react sharply to any result of the "coalition". At the moment, the intrigue is still preserved - in what format the coalition will be created and whether it will be created in principle. With a negative (but unlikely) scenario, the pair will go down to monthly lows (mark of 1.1550), but when the agreement is reached, the price will return to the 18th figure with the prospect of further growth.
This is consistent with the technical picture. The indicator Ichimoku Kinko Hyo on the daily chart has generated a "Golden Cross" signal, which warns about the change of trend in the north direction. The MACD oscillator is approaching zero, which also indicates the priority of purchases. The estimated targets are 1.1810 and 1.1875 (the lower and upper boundaries of the Kumo cloud on D1).
