As the Euro (EUR) faces challenges amidst political uncertainties in Germany, the currency continues to trade lower. OCBC’s FX analysts Frances Cheung and Christopher Wong report that the EUR is currently at 1.0612 levels, reflecting the impact of the minority government’s economic and diplomatic struggles.

Political Turmoil in Germany

The current situation in Germany is marked by instability as PM Scholz seeks an earlier confidence vote on 16 Dec, anticipating a loss and the likelihood of snap elections on 23 Feb. This political uncertainty adds pressure to the EUR, compounded by potential shifts in US foreign and trade policies under a Trump presidency.

Impact on European Economy

If the US implements a 20% tariff, it could significantly impact Europe, which is already experiencing a slowdown in growth. The US stands as the EU’s top export destination, making it vulnerable to any changes in trade dynamics. Additionally, EU-UST yield differentials have widened, with expectations of a dovish ECB and talks of a 50bp cut at the upcoming December meeting.

Technical Analysis of EUR

From a technical perspective, daily momentum for the EUR is bearish, with the RSI falling. The currency faces a support level at 1.06, representing the 2024 low. A breach below this support could lead to further downside towards 1.0450/1.05 levels. On the upside, resistance is seen at 1.0740 (76.4% fibo) and 1.0810/30 levels (21 DMA, 61.8% fibo retracement of 2024 low to high).

Analysis:

The article highlights the impact of political uncertainties in Germany on the Euro (EUR) and the broader European economy. The ongoing challenges faced by the minority government, coupled with potential changes in US policies, contribute to the bearish momentum of the EUR.

Key Points:

  • Germany’s political instability is reflected in the EUR trading lower.
  • PM Scholz’s confidence vote and potential snap elections add to the uncertainty.
  • A Trump presidency could lead to significant shifts in US foreign and trade policies.
  • A 20% tariff from the US could negatively impact Europe’s already slowing growth.
  • The EU-UST yield differentials have widened, with expectations of a dovish ECB.
  • Technical analysis shows bearish daily momentum for the EUR, with support and resistance levels identified.

Overall, the article underscores the interconnectedness of global politics and economics, emphasizing the importance of staying informed on international developments for individuals looking to navigate the financial landscape effectively.

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