I’ve highlighted the election on Sunday already a couple of times this morning including a guide to the voting system but before I head out for the week-end let’s have a quick look at what it means as a risk event for the euro.
Chancellor Merkel and her centre-right coalition are in serious danger of a diminished vote and therefore raises the needs for a less than favoured partnership with the centre-left. A “grand coalition” in effect which would not sit well with investors or indeed currency traders. More is definitely less on this occasion.
Social Democrat leader Peter Steinbruck is everything Merkel isn’t. Gregarious and sometimes/often clownlike in behaviour he has been reaching out to many of the country’s youth and has now launched a scathing attack on his opponent by accusing her of negligence over the NSA spy scandal. But his campaign has not been a well-worked one and needs this one last throw of the dice to woo more to his cause.
Last-minute public opinion surveys predicted that Merkel’s conservatives would capture the largest share of the vote, but that the anti-eurozone Alternative for Germany (AfD) party could win 4.5%, putting it within a hair’s breadth of winning seats in the Bundestag.
Should the AfD achieve the 5% vote needed to win seats, it would destroy Merkel’s hopes of continuing her current conservative-liberal alliance
Chancellor Merkel has had fair her share of dissenters lately as she attempts a return to office that would make her Europe’s longest serving elected female head of government knocking Mrs T into second place. The Guardian has an interesting tale of the tape here .
Merkel posed to take Maggie’s crown
So what does it all mean for the euro? The uncertainty is definitely going to deter some buyers ahead of the outcome given that it’s no done deal that Merkel gets back in under the same terms. EURUSD has good demand at 1.3500 as I’ve mentioned earlier but we’ve rallied a long way of late as indeed have most euro pairs which leaves plenty of room for a reversal should the outcome not be a clean one .
If the SDU-led opposition get into office then the uncertainty will also transfer to the euro capping any notable further gains until the precise manifesto becomes clear.
A good result for Merkel and the euro will see a knee jerk ramp higher which will run into profit taking bringing it back lower to consolidate for next rally.
I’m not a qualified student of German politics and would welcome input from all those who are. We shall post more over the weekend and bring you exit polls as best guesses
Now where did I put my crystal ball ?
