German election instant reaction EURUSD

The Social Democrats (25.9%) under Olaf Scholz hold a narrow lead over the Conservative block of CDU/CSU (24.3%) under Armin Laschet. The Greens appear to have gained approximately 15% of the vote, while the Free Democrats (FDP) have captured about 11.5% of the vote.

The two fringe parties AfD (10.5%) and The Left (5%), lost votes. Importantly for those who feared a big swing to the left, it’s not yet clear if The Left will receive enough votes to reach the 5% threshold needed to be represented in Parliament.

Complex coalition negotiations involving the various parties will now take place in the weeks and even months ahead.

Three coalitions could find a majority. One option would be the repetition of the so-called ‘Grand Coalition’ between the Conservative Block of CDU/CSU and the Social Democrats (SPD) – one that all major politicians have already ruled out.

More likely the successful coalition will see either of the two smaller-sized blocks, the Free Democrats (FDP) and Greens, govern with either the Conservatives (the so-called ‘Jamaica coalition’) or with the Social Democrats (the so-called ‘traffic light coalition’).

Whichever form the new government takes and despite giving the two smaller parties tremendous power as king-makers, it is expected to be seen as a government providing stability and continuing to occupy the centre ground.

The German constitution does not set a time limit when a new government has to be formed. It only puts a time limit when the new Bundestag (Parliament) has to constitute itself at a maximum of 30 days after the election.

If, by that time, no coalition is formed and no majority found to elect a Chancellor, the current government led by Angela Merkel will stay on as a caretaker government for as long as needed.

Evidence of this stability is viewed in the EURUSD trading mostly unchanged at the time of writing from its New York close on Friday of 1.1719. The pullback in the EURUSD from the 1.1909 double high is viewed as part of a bottoming pattern that is expected to hold the band of broad support between 1.1650 and 1.1450 before a return to 1.1900/1.2000.

Source Tradingview. The figures stated areas of September 27th, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.