The euro is now trying to take advantage of the election in Germany. Experts believe that the euro is likely to add gains amid this event.
Germany is Europe's economic engine. Therefore, it is not surprising that the trajectory of the euro depends on both the economic and political situation in the country. The 2021 German federal election has demonstrated the resilience of the euro. Yet, its growth may turn out to be fragile.
Forex strategists expect the euro to rise in the near future. Currently, it is influenced by political events, namely the coalition that can be formed by the Center-left Social Democrats, the Greens, and the Free Democratic Party. Experts at MUFG are sure that this coalition may push the euro higher in the medium-term perspective.
Uncertainty about the results of the elections in Germany is shaking the position of the euro. Now, it is rising against the US dollar. Experts believe that in the short and medium-term, the single currency will weaken against the US currency due to a further increase in US Treasury yields. The greenback also asserted strength amid growing government bond yields.
"USD is likely to remain caught in the cross-currents of a more hawkish FOMC and fading concerns around a potential Evergrande default," Commonwealth Bank of Australia analysts said. "Nevertheless, the risks are skewed to a firmer USD, with any renewed Evergrande worries unlikely to trigger the level of market volatility of last week," they noted. As a result, the EUR/USD pair is trading mixed as if the US dollar and the euro are trying to pull the blanket over themselves. However, these attempts to break out into the leaders make the pair volatile.
The uncertainty over the outcome of the elections in Germany adds fuel to the fire. Experts are betting on the Center-left Social Democrats as well as the long-term formation of a coalition government in Germany. According to preliminary forecasts, Social Democrat Olaf Scholz is likely to become the next German chancellor. Social Democratic Party, led by Scholz, took the narrow win in the race, slightly ahead of Conservatives. Members of the SPD are ready to form a coalition government with the Greens and the Free Democratic Party.
So, the euro is weaker against other currencies, primarily the US dollar. The pair is facing bearish pressure due to rising US Treasuries. On September 27, the EUR/USD pair fell by 0.1% to 1.1706. On September 28, the EUR/USD pair declined to 1.1688, showing signs of a downward trend. According to experts, a breakout of 1.1664 will trigger a sell-off of the euro. As a result, the the euro may tumble to 1.1500.
Analysts are sure that positive macroeconomic statistics, which are due in the near future, may push the euro higher, helping it break out from the bear's claws. Yet, reports may also be disappointing. According to preliminary estimates, the Consumer Confidence Index (CCI) is expected to fall to -1.6 in October from -1.2 in September. The euro is likely to regain ground amid the news about the government coalition.
