That weekend gap was more than telling. EUR/USD not only failed to close the gap but also extended its falls and reached the lowest levels in a month, trading at 1.1810.
Support awaits the pair at 1.1780. This level served as a cushion in late August when the pair was moving to the upside. Further support is at 1.1712, the August 2015 high. Resistance awaits at 1.1870.
The main downwards driver is the German elections. While Chancellor Angela Merkel is set to stay in office, the fractured nature of the new parliament implies a long period of coalition talks. In addition, the potential “Jamaica coalition†between Merkel’s CDU, the Greens, and the liberal FDP could be less pro-European.
Reforms that French President Macron wishes to enact might fall short. If growth is impeded, there is less room for monetary easing by the European Central Bank, hence a weaker euro.
Markets preferred a continuation of the current Grand Coalition government between the CDU and the center-left SPD. However, the terrible outcome for the socialists means that they prefer staying in opposition.
Can the pair continue falling? A lot depends on central banks. Fed Chair Yellen will be speaking at 16:45 GMT, and she could weaken the dollar. In addition, watch out for further developments around North Korea. The rogue nation has a bigger effect on USD/JPY, but EUR/USD suffers the collateral damage.
More: EUR: Less Favorable Outcome Of German Election EUR Negative But Downside Likely Limited – BTMU
