On the back of Angela Merkel's failure to form a new coalition government after September elections to the Bundestag, the political crisis in Germany has a negative impact on the single European currency.
Indeed, the failure of the German Chancellor Merkel to unite around the unconnected led to a political crisis, but probably the consequence was already expected. Her statement about dealing with a new election in forming a minority government only increased political uncertainty in the country. But the European financial market and the Germany itself has not yet responded an evidently negative reaction to this news. German stock index DAX 30 showed positive dynamics on Monday and the single European currency reacted to this event by a slight decline.
In assessing this state of affairs, it can be assumed that as Germans, as well as investors, do not view the political crisis as a critical event for financial markets, it means that one should not expect a significant fall in the local stock market and the single euro currency. Therefore, we do not expect a noticeable depreciation of the euro due to these events, unless the situation certainly gets worse. A possible negative event for the euro may be the extended adoption of the United States in the new tax code, which is expected to strengthen the long-term attractiveness of the US dollar as an investment currency. Therefore, as repeatedly pointed out, there are no any significant changes expected in the currency markets until the final Senate meeting on this project, which is scheduled on November 28.
In general, trading in the currency markets for this week is expected to be inactive on the eve of the Thanksgiving holiday. And from today's events, it is necessary to highlight the publication of the inflation report in Britain, as well as the release of data on sales in the secondary housing market in the United States.
Forecast of the day:
The EUR/USD currency pair is trading at the level of 1.1730. It would likely overcome this mark, and then there is an opportunity that it will decline to 1.1670 in the wake of the political crisis in Germany, as investors hope that the US tax reform will be accepted.
The AUD / USD pair remains under the strong pressure as a result of increased pessimism about the state and prospects of the Australian economy. Taking this into account, it can be expected that if the pair overcomes the mark of 0.7530, it may fall to 0.7470.
* The presented market analysis is informative and does not constitute a guide to the transaction.
