Euro whipsaws through a wide bearish range, as German coalition talks dissolve without agreement

Nov 21 • Morning Roll Call • 64 Views • No Comments

As news broke from Germany late Sunday evening, revealing that current chancellor Angela Merkel had failed in her attempts to forge a coalition alliance with the FDC party, the euro fell immediately once the FX markets opened. EUR/USD fell by circa 0.9%, reaching S3.

As European markets opened the currency pair began to recover, whilst FX markets were absorbing the German news and playing out the various possibilities; with the general consensus being that the situation wasn’t as alarmist as many in the financial media were suggesting. At one point EUR/USD broke back up through the daily pivot point, registering a 0.2% rise. However, the optimism was short lived once Mrs Merkel stated that she’d rather have fresh federal elections than be in power as a minority government, looking for support from other policies on a “supply and confidence” basis; each time a critical vote is held she’d have to organise a compromise with an opposition party to pass the law. Whilst the euro fell sharply, European equity markets failed to react negatively during a quiet economic calendar news day, with Germany’s DAX closing up 0.50%.

Other European news concerned the U.K. and Brexit, with Michel Barnier beginning to tighten the noose, demanding that the U.K. negotiators come up with: a final exit invoice offer, a solution to the Irish border question and the precise security current E.U. residents in the U.K. will experience after Brexit. The fact that these three factors are still not resolved, illustrates just how little progress Great Britain’s exit team have made, during the seventeen months since the Brexit referendum was held.

Despite these reaffirmed ultimatums from Barnier, sterling rose versus the majority of its peers during the day, investors may have been triangulating Merkel, Barnier and the U.K. and reaching the conclusion that the Brexit damage may now take longer to inflict on the U.K. economy. However, if Merkel does not remain as Germany’s chancellor then the situation could deteriorate, as she was in many ways a pragmatic supporter and allay of a soft Brexit and prepared to bend. GBP/USD rose circa 0.2% on the day, whilst EUR/GBP fell by approx. 0.7%.

Having risen significantly during Friday’s trading sessions, Gold gave up the majority of the biggest gains seen in over two months on Monday and subsequently dropped by the largest value seen in two months, as a risk on mood returned to Wall Street, pushing up the value of the U.S. dollar and the key U.S. equity markets. Investor sentiment remained buoyant and investors reacted in a neutral manner, to the news that chair of the Fed Janet Yellen was resigning with immediate effect. With very little in the way of scheduled calendar news to generate momentum, combined with the U.S. Senate taking a break from discussing tax reform, equity prices were maintained. And with Thanksgiving celebrations arriving this Thursday, the overall mood of optimism in the USA should remain, given the lack of economic calendar releases due over the coming days.

EURO

EUR/USD fell to S3 shortly after markets opened Sunday evening/Monday morning, the currency pair whipsawed through a wide bearish range throughout the trading day; recovering to breach up through the daily pivot point, before then reversing back down through S2 to close down circa 0.7% at 1.173. EUR/GBP fell by circa 0.7% to S2, ending the day at approx. 0.866. Versus CAD, AUD, NZD, CHF and yen, the euro losses were less on the day; posting an average 0.2% loss.

STERLING

GBP/USD rose through R1 shortly after European markets opened, subsequently giving up some gains as the U.S. dollar gained strength, ending the day up circa 0.1% at 1.323. GBP/JPY ended the day up circa 0.3% resting on R1 at 149.0. Versus CHF and CAD sterling rose by circa 0.2% on the day.

U.S.DOLLAR

The dollar index rose by circa 0.4% on the day, its first gain in approximately a week. The U.S. dollar rose versus the majority of its peers on the day; USD/JPY rose by 0.2% on the day, closing out at 112.6, above the daily pivot point, but falling short of R1. USD/CHF breached R1, to close up circa 0.4%, at 0.993. USD/CAD ended the day resting close to R1, up circa 0.3% at 1.281.

Gold

As the risk on appetite enveloped the markets, with global equities rebounding and the dollar rising, gold surrendered the gains made late last week, to slip back through the 100 DMA at 1280, having made a significant move away from the critical moving average, during Friday’s trading sessions. XAU/USD ended the day having breached S1, down circa 1.2% on the day at $1277 per ounce.

EQUITY INDICES SNAPSHOT FOR NOVEMBER 20th.

• DJIA closed up 0.31%.
• SPX closed up 0.13%.
• FTSE 100 closed up 0.12%.
• DAX closed up 0.50%.
• CAC closed up 0.40%.
• STOXX 50 closed up 0.39%.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 21st.

• AUD RBA Governor Lowe Gives Speech in Sydney.

• GBP Public Sector Net Borrowing (OCT).

• GBP CBI Trends Total Orders (NOV).

• USD Existing Home Sales (MoM) (OCT).

• USD Fed’s Yellen Speaks at Stern Business School.

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