- Although Merkel’s party won the most votes in the elections, it is going to take a lot of time and negotiations for her to form a governing coalition
- Market position is currently quite heavily long EUR (FXE) and short USD (UUP)
- Technically, the EUR/USD is forming a short term top on the daily charts
Although exit polls show that Angela Merkel’s center-right Christian Democrat-led alliance has secured 33% of the overall votes, she is now faced with a daunting task of forming the next government as she does not have an outright majority and the leader of her coalition partner from the previous government, Martin Schulz of the Social Democrats, has declared that they will be going into opposition after garnering only 22% of the votes – their worst electoral result since 1949.
The rise of the Alternative für Deutschland ((AfD)) is particularly worrying as this is the first time that a far-right party has managed to win seats in the Bundestag since the immediate post-war period. In the previous election in 2013, the AfD could not even manage the minimum 5% required for a party to have any seats in the Bundestag but a surge in voter discontent over Merkel’s refugee policy has led to the party winning 13.5% of the votes this time round.
However the government is formed, the task of reaching a consensus to forge policies is all the more harder given that this is the first time since 1953 that six parties are poised to enter the Bundestag. Until a governing coalition is forged, political uncertainty remains and that is not something that a market likes. Read more here>>>