EURUSD jumps on German coalition talks breakthrough

Market Analysis /
12 Jan 2018

Boosted by news of progress in German Coalition talks, EURUSD smashed through highs today, further adding pressure to the US dollar pair and leaving clear sky to the upside. EURUSD hit highs of 1.2136, breaking through the key level at 1.2090 and setting up a test of much longer term higher levels.

 The upside has been in a relentless rally for a number of months and has been the key battleground for those US dollar bears that are growing in number by the day. Today’s boost in the pair is more a Euro-based story, as the SPD leader in Germany announced a preliminary agreement to form a coalition government with Angela Merkel. The news doesn’t just mean that the limbo in German politics is finally over, but it means that Merkel will have a strong majority rather than the minority government it looked like she may have.

 There is a huge contrast between Germany and the US, and you could well be forgiven for thinking that the US is the country in political turmoil without a government for over 100 days. The contrast between the calm Angela Merkel, and the ferocious, playground bully Donald Trump couldn’t be clearer. But looking at the plans for the economy the differences are even starker. The ECB, although still plowing forward with its QE program, have a stimulus in place that is working and is helping the Eurozone economy to recover, however, Germany is the real rescue package here. Germany has long been struggling with oversupply and has had to take a hit for the greater good of Europe.

 In the US its “MAGA” and nothing else, but within the Trump tax plan and the cutting of red tape, there is no plan as to what will happen if the tax plan does not bear the fruits that many expect. Expectations are that the tax plan spurs a huge boost in spending, spending that will be enough to boost the economy and support it even as the Fed withdraws the stimulus. However, if the boost in spending fails to materialize, then the Fed will be left with an enormous budget deficit hole.

 After breaking through so many upside levels over the last 48 hours EURUSD is now sitting a tad below the next level at 1.2170. That level is now key on the weekly chart, and is the 50% fib retracement of the moves from the highs back in May 2014  to the lows in October 2016. When the moves are so aggressive technical levels tend to be taken out regularly. However the longer term 50% fib could be the area that has some taking profits.

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