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The Analytical Overview of the Main Currency Pairs on 2021.09.28

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.1724
Prev Close: 1.1695
% chg. over the last day: -0.25%

ECB member De Kos said yesterday that the ECB’s monetary support cuts should be made with caution. At the same time, ECB head Christine Lagarde indicates that there is reason to believe that the energy crisis in Europe will not lead to long-term inflation. Analysts believe the opposite.

Trading recommendations

Support levels: 1.1690, 1.1620
Resistance levels: 1.1728, 1.1772, 1.1802, 1.1835, 1.1894, 1.1934, 1.1969

From the technical point of view, the general trend of the EUR/USD currency pair is bullish, but for the last 3 trading sessions, the price has been trading near the priority change level. The MACD indicator shows a divergence. Under such market conditions, buy deals can be considered from the priority change level. It is best to look for sell trades from the resistance levels near the moving average or after the breakdown of priority change level.

Alternative scenario: if the price breaks down through the 1.1704 support level and fixes below, the mid-term uptrend will likely be broken.

News feed for 2021.09.28:

– Eurozone ECB President Lagarde’s Speech at 15:00 (GMT+3);
– US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
– US Fed Chair Jerome Powell’s Speech at 17:00 (GMT+3);
– US FOMC Member Bowman’s Speech at 20:40 (GMT+3);
– US FOMC Member Bostic’s Speech at 22:00 (GMT+3).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3658
Prev Close: 1.3695
% chg. over the last day: +0.27%

Bank of England Governor Andrew Bailey said yesterday that the pace of economic recovery has slowed in recent months. However, the high prices will be temporary, according to the BoA. And to suppress inflation, the Bank of England should not consider cutting QE but immediately adjust the interest rate.

Trading recommendations

Support levels: 1.3685, 1.3629, 1.3614, 1.3525
Resistance levels: 1.3769, 1.3812, 1.3886, 1.3935, 1.4002

On the hourly time frame, the GBP/USD trend is bearish, but the local trend is bullish again. The MACD indicator has become inactive. Buy trades should be considered only throughout the day and only with short targets from the support levels. Sell trades can be found at the resistance levels above the moving average line.

Alternative scenario: if the price breaks out through the 1.3812 resistance level and consolidates above, the bullish scenario will likely resume.

There is no news feed for today.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 110.64
Prev Close: 111.00
% chg. over the last day: +0.32%

Japanese Prime Minister Yoshihide Suga indicated that the state of emergency in Japan, associated with COVID, would be lifted on Thursday. This is good news for better economic indicators and business activity in the coming months.

Trading recommendations

Support levels: 110.95, 110.65, 110.40, 109.95, 109.63, 109.27
Resistance levels: 111.49

The main trend of the USD/JPY currency pair is bullish. Against the background of the Japanese Yen weakness, the USD/JPY quotes continue to grow. But it is obvious that the price cannot reach the upper border of the uptrend channel, while the MACD indicator begins to signal divergence. All these are signs of the buyer’s weakness. Under such market conditions, it’s better to look for buy positions from the support levels after a small pullback. The price has deviated strongly from the moving average, and now there is a high probability of decline. Sell positions should be considered only throughout the day from the resistance levels but only after the sellers’ initiative.

Alternative scenario: if the price falls below 109.63, the uptrend is likely to be broken.

There is no news feed for today.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.2643
Prev Close: 1.2627
% chg. over the last day: -0.12%

The Canadian dollar is a commodity currency, so the USD/CAD currency pair is highly dependent on the dynamics of the dollar index and oil prices. Both the dollar index and oil prices increased yesterday. As a result, the USD/CAD quotes are trading flat, with a slight advantage of strengthening Canadian currency.

Trading recommendations

Support levels: 1.2565, 1.2518, 1.2425
Resistance levels: 1.2635, 1.2701, 1.2774, 1.2891

From the technical point of view, the trend has changed to bearish. The price fell below the moving average and broke through down the priority change level. The MACD indicator is negative, but there are signs of a reversal in the form of divergence. These are signs of the seller’s weakness. Under such market conditions, it is better to buy only after the price returns above the 1.2635 resistance level. It is better to look for sell trades from the resistance levels near the moving average.

Alternative scenario: if the price breaks out through the 1.2774 resistance level and fixes above, the uptrend will likely resume.

There is no news feed for today.

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Financial News Forex and Currency News

28 Sep

The energy crisis in Europe and Asia could significantly slow down the global economic recovery

by JustForex

The US stock market closed without a single trend yesterday. The Dow Jones index increased by 0.21%, thanks to the growth of the banking sector. The S&P 500 index decreased by 0.28%, and the Nasdaq technology index lost 0.52%. Investors are clearly leaving technology stocks and switching to companies associated with economic growth. This is a sign that investors are expecting the market to rise soon. The energy sector is also in the focus of investors, as due to the increase in oil and natural gas prices, energy stocks are growing.

There is a political conflict between the Democrats and Republicans in the US Parliament over the national debt limit. The Republican Party is blocking a bill that ties government funding to the debt ceiling.

Federal Reserve member Williams says that the Fed does not expect the labor market to improve much in September and October. The Fed has recently made significant progress in curbing inflation and job creation. But if the US doesn’t solve the national debt problem, the Fed won’t be able to repair the damage to the economy. Fed member Evans says that the central bank predicts that the unemployment rate in the United States will fall to 5% by the end of 2021 and that the labor market will be strong next year.

Supply chain problems will reduce global auto production in the near term. Goldman Sachs cut its forecast for global auto production for 2021 and 2022 to 75 million and 85 million, respectively.

The European stock market closed in the green area yesterday. British FTSE 100 and French CAC 40 increased by 0.2%, German DAX increased by 0.27%, Italian FTSE MIB and Spanish IBEX 35 added 0.6% and 1.5%, respectively. Germany’s federal election will be followed by lengthy coalition talks, extending a period of policy uncertainty beyond the election. But Olaf Scholz, the chancellor candidate of the winning Social Democratic Party (SPD), expressed hope that the new German government would be formed before Christmas.

The 10-year US yield exceeded 1.5%, its highest level since June, and the two-year yield reached an 18-month high. Gold and silver prices are set to decline amid rising government bond yields.

Oil is rising amid signs of a global energy crisis, while natural gas prices are just “skyrocketing to space” as inventory levels remain critically low ahead of the heating season. US natural gas futures increased by more than 5% yesterday and more than 17% in the last 2 trading sessions. The growth of demand for natural gas is likely to stimulate oil demand, as energy companies are moving to a different type of fuel.

Troubled Chinese real estate developer Evergrande may sell a 50% stake in its insurance department for $600 million. In addition to problems with the real estate market, China is also facing an energy crisis that could come as a shock to global supply chains as the world’s largest exporter’s businesses are forced to save energy by cutting production.

India’s large fleet of coal-fired power plants is at dangerously low inventory levels, which could force the country to buy expensive batches of fuel or risk power outages. More than 60% of coal-fired capacity has low fuel reserves.

Main market quotes:

S&P 500 (F) 4,443.11 −12.37 (−0.28%)

Dow Jones 34,869.37 +71.37 (+0.21%)

DAX 15,573.88 +42.13 (+0.27%)

FTSE 100 7,063.40 +11.92 (+0.17%)

USD Index 93.40 +0.07 (+0.08%)

Important events for today:

– Japan Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
– Australia Retail Sales (m/m) at 04:30 (GMT+3);
– Eurozone ECB President Lagarde’s Speech at 15:00 (GMT+3);
– US CB Consumer Confidence (m/m) at 17:00 (GMT+3)
– US Fed Chair Jerome Powell’s Speech at 17:00 (GMT+3);
– US FOMC Member Bowman’s Speech at 20:40 (GMT+3);
– US FOMC Member Bostic’s Speech at 22:00 (GMT+3).

by JustForex

Economics & Fundamentals Financial News

28 Sep

Energy rocketing higher and yields too

By The Market Research Team, ForexTime

There’s a lot going on in the markets at present as traders and investors try and get their heads round the various competing forces. Brent crude is rising for a sixth straight day and is making three-year highs through $80. The global energy crisis is a key focus which may only get worse as we head into winter.

Demand is outstripping supply as the gas crunch spreads around the globe, propelling prices to new parabolic peaks. The lack of natural gas is forcing a switch to oil as an alternative for power generation. The global economic recovery is also seeing more demand in general, with a pickup in airline traffic depleting low oil inventories.

Brent crude has surged past the year-to-date high made in July at $77.46. The May 2018 top sits at $80.47 ahead of the October 2018 mark at $86.60. Prices are overbought on the daily RSI and have cut through the upper band of the Keltner channel so a pullback may be in order soon.

Bond yields ripping higher, fuelling the dollar

Having seemingly not paid too much attention to the Fed’s hawkish shift last week, markets are hitting bond markets hard, which means yields are flying north. The widely watched 10-year US Treasury yields hit 1.51% and the shorter end five-year yield touched levels last seen in February 2020.

Notably, this is pushing USD/JPY higher, with JPY also suffering as a large energy importer.

Buyers took out the August high yesterday at 110.80 and now have their eyes on this year’s top at 111.659. A break through here could see a push towards 112.25.

The dollar looks to now be breaking higher on the DXY, with the year-to-date high at 93.72 now within sight. EUR/USD is similarly looking towards major levels, with 1.16639 key support. The energy crisis and shortages mean the backdrop is fragile which is also helping the greenback.

ECB Sintra symposium

The ECB conference at Sintra kicks off today. This has delivered some historic shifts in ECB policy in the past – recall President Mario Draghi’s uber dovish comments in 2019.

Nothing of that magnitude is expected this week but eurozone inflation numbers at 13-year highs released on Friday should sharpen the minds, or at least the hawks’ talons.

Does the ECB still view inflation as “transitory”? And will we get any hints on how the emergency bond buying programme (PEPP) will end next March?

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Energy Financial News

28 Sep

Trade of the Week: Can Brent hit $80/bbl?

富拓市场分析师Han Tan

By Han Tan Chief Market Analyst at Exinity Group

Brent oil has hit a new year-to-date high, tantalizingly close to the psychologically-important $80 mark and trading around levels not seen since 2018.

From a technical perspective however, Brent appears set for an immediate pullback, considering that prices have breached the upper Bollinger band while the 14-day relative strength index is flirting with the 70 mark; both of these technical indicators signal overbought conditions.

Why are oil prices so high?

Using simple economics, prices rise when demand is higher than supply, all else equal.

Oil prices have surged on the back of a global energy crunch, as major economies rush to stock up supplies ahead of winter (think of the amounts of fuel needed to keep your home warm during those cold months). This surge in demand is evident in the notable drawdowns in global stockpiles, with US inventories hitting their lowest levels since 2018. It is worth keeping in mind that oil bulls have also been supported by the disruptions to US crude production from Hurricane Ida last month.

Natural gas tends to be favoured as a heating fuel, but its prices too have skyrocketed! Natural gas futures in the UK have soared by over 230% so far this year.

As gas becomes more expensive, markets are then turning their attentions to oil-products as an relatively cheaper heating source.

That shift in demand in turn has added to the upward pressure for oil prices.

But wait … isn’t OPEC+ pumping out more oil?

Yes, but it’s not enough for markets at present.

Even though OPEC+ has stuck to its plans for gradually raising output levels by 400k bpd each month, the global demand recovery is still able to absorb those incoming barrels. Earlier this month, OPEC+ released its own projections that global inventories would drop at a rate of 825k barrels a day through end-2021.

So do the math. The incoming OPEC+ supplies is only about half the projected pace of the drawdown in global inventories.

When this alliance of 23 major oil producers holds its next meeting a week from today, on October 4, markets will be closely monitoring to see if they decide to ramp up output by higher-than-expected levels. After all, US President Joe Biden has already urged them to do so, in the name of protecting US households whose wallets have been hurt by rising prices at the pump.

Where to next for oil prices?

Overall, as long as global market conditions continue tightening through year-end as expected, this creates a supportive environment for oil bulls, creating a sturdier floor below oil benchmarks.

For this week, markets will be closely watching the weekly US inventories data on Wednesday, already with whispers of another drawdown exceeding 3 million barrels.

Should such forecasts prove true, then Brent oil looks set for a date with $80/bbl.

Then there’s next week’s key decision by OPEC+ that’s set to have a major say on how oil prices fare in the aftermath.

However, if Delta-related concerns take an unexpected climb and dominate market sentiment, coupled with a surprise build in US inventories, that could prompt oil prices to unwind more of its recent gains beyond any technical pullback over the immediate term.

Still, support for Brent oil should arrive at the recent cycle high around $75/bbl, with stronger support expected to follow around the $73/bbl region, which are also where key Fibonacci lines can be drawn in any near-term retracement from current levels.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Energy Opinions

28 Sep

XAUUSD Double Zigzag To Complete Correction

By Orbex

The XAUUSD formation suggests that the current intermediate correction wave (4), is a triple zigzag consisting of minor sub-waves W-X-Y-X-Z.

The second intervening wave X has ended, and the final minor wave Z looks almost complete. The internal structure looks to be a double zigzag of the minute degree. The completion requires the construction of the actionary wave ⓨ.

It is possible that wave ⓨ will take the form of a double combination, as shown in the chart, and will complete its pattern near 1636.55. At that level, minor waves Y and Z will be equal.

The alternative scenario suggests that the formation of the intermediate correction (4) has been fully completed.

To confirm this option, bullish market growth and the development of an intermediate wave (5) are relevant. Most likely, it will take the form of an impulse, which will consist of five minor sub-waves 1-2-3-4-5, as shown in the chart.

The price of gold could grow significantly above the level of 1917.03, shown by the minor intervening wave X.

Article by Orbex

Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com

Financial News Forex and Currency News

28 Sep

Intraday Market Analysis – USD Tests Supply Area

By Orbex

EURUSD tests major support

The US dollar found support from better-than-expected durable goods orders.

The pair gave up all its gains from the rally in late August. This indicates an erosion in the bullish sentiment.

The euro’s latest rebound has been capped by 1.1750. Sellers are pushing towards the critical floor at 1.1665. And its breach would lead to the last line of defense at 1.1600 from November last year.

An oversold RSI may bring in some buying interest, though buyers will need to lift 1.1820 before they could hope for a bullish reversal.

EURJPY seeks support

The Japanese yen weakened after the BOJ warned of a recovery delay in its meeting minutes. The euro has capitalized on its rebound from the daily demand zone around 128.00.

A close above 129.65 may have tipped the balance to the upside. A break above 130.10 would pave the way to the key resistance of 130.70 on the daily chart.

However, a descending RSI from the overbought zone is in contrast with the price’s higher highs. There is a risk of a pullback as the momentum slows down. 129.40 is the immediate support.

SPX 500 struggles to rebound

The S&P 500 halted its advance as the Fed’s taper is closing in.

The V-shaped recovery has met selling interest at 4482, the origin of a recent sell-off. A diverging RSI suggests a loss of momentum in the rebound.

The long side may regain confidence in case of a bullish breakout and 4540 would be the next target. Failing that, a drop below 4425 would prompt buyers to bail out, leaving the index vulnerable to a sharp fall.

4340 would be the last support before a deeper correction drives the index to July’s lows near 4240.

Article by Orbex

Financial News Forex and Currency News

27 Sep

Chris Vermeulen’s Technical Trader Tip Of The Week – September 27, 2021

By TheTechnicalTraders

Join Chris as he talks about the energy sector coming to life recently. Energy stocks are starting on a verge of a break out to the upside this week.

Subscribers to any service at The Technical Traders: Please let us know via a member ticket what you would like to learn about and we will do our best to make sure this happens.

Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!

CLICK ON THE IMAGE BELOW TO WATCH THE VIDEO

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TheTechnicalTraders.com

Opinions Stock Market News

27 Sep

Disney – Flexing Its Pricing Power Muscle

By Ino.com

– Disney (DIS) has been the sweet spot of capitalizing on the pent-up post-pandemic consumer wave of travel and spending while being the new and preferred stay-at-home content provider via Disney Plus. Over the past couple of years, Disney has rolled out and refined its wildly successful array of streaming initiatives that catered to the stay-at-home economy during the pandemic. These streaming efforts have transformed Disney’s business model, which its legacy businesses will further bolster as the world economy prospects continue to improve and reopen. Taken together, Disney has set itself up to benefit across the board with its streaming initiatives firing on all cylinders and theme parks coming back online. The company has been posting phenomenal streaming numbers that have negated the negative pandemic impact on its theme parks. This streaming-specific narrative will change as the theme park revenue comes back online and flows into the company’s earnings. Due to the tremendous success of Disney Plus, the company is now flexing its pricing power muscle and put through pricing increases on its streaming platform. This pricing power speaks to the value of Disney Plus as a standalone streaming platform while expanding its margins on this new business vertical. Disney presents a compelling buy for long-term investors as its legacy business segments get back online in conjunction with its wildly successful streaming initiatives, all of which have more pricing power down the road.

Pricing Power Flexing

Disney recently pushed through another price increase on its monthly subscription tier for its Hulu offerings. This is on top of price increases that it pushed through on its Disney Plus subscription earlier this year. Clearly, the Disney streaming platforms possess pricing power as the adoption of these steaming properties by consumers becomes more widespread. Part and parcel with these price increases is margin expansion and increased revenue. Disney has forecasted that its Disney Plus streaming platform will have up to 260 million subscribers by 2040. Thus, even marginal price increases will translate into meaningful revenue windfalls for the years to come.

Streaming and Theme Park Synergy

The company continues to exceed all expectations in the streaming space accelerated by the stay-at-home pandemic backdrop. Disney’s streaming initiatives have been major growth catalysts for the company. Disney+ growth in its subscriber base has shifted the conversation from pandemic impact on its theme parks to a durable and sustainable recurring revenue model. This streaming bright spot in conjunction with its park and resorts coming back online has been a perfect combination as of late, especially with widespread vaccinations. Disney+ has racked up 94.9 million paid subscribers, Hulu has 39.4 million paid subscribers, and ESPN+ has 12.1 million paid subscribers. Collectively, Disney (DIS) now has over 146 million paid streaming subscribers across its platforms. Disney+ has been wildly successful via unleashing all its Marvel, Star Wars, Disney, and Pixar libraries in what has become a formidable competitor in the ever-expanding streaming wars domestically and internationally. Hence Disney’s stock performance during the pandemic as its theme parks was shuttered.

Post-Pandemic and Box Office

Disney’s business segments are coming back online as the pandemic subsides worldwide with widespread vaccinations. Even the Box Office is showing life with Disney’s successful post-pandemic releases of Black Window and Shang-Chi. Disney’s theme parks are reopening, as seen with phased reopening efforts and mask mandates being lifted. Inevitably, movie productions will resume, movie theaters and theme parks will reopen to full capacity, and sports will return to pre-pandemic formats. The resumption of these activities will feed into Disney’s legacy businesses in conjunction with its massive streaming successes. Disney continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Its parks and resorts continue to be a growth avenue with tremendous pricing power. In addition, Disney is going all-in on the streaming front and acquired full ownership of Hulu, and the company has launched its Disney+ streaming service with tremendous success.

Conclusion

Disney (DIS) has successfully shifted its business model to a subscription-based service that produces a durable, sustainable, and predictable revenue stream via its streaming initiatives. These streaming properties possess tremendous pricing power over the years to come. As a result, the company has shifted the narrative from pandemic challenges to a focus on becoming a streaming juggernaut with over 146 million paid subscribers across its various platforms. Against the backdrop, its legacy business segments are ready to regain their footing as the pandemic subsides via widespread vaccinations. We have already seen the box office come alive with Disney’s Black Widow and Chung-Chi successes. All the initiatives that Disney has taken over the previous few years to remediate its business and restore growth appear to be coming to fruition via its Fox acquisition and its streaming initiatives. Disney continues to invest heavily into its streaming services (Hulu, ESPN Plus, and Disney+) to propel its growth and dominance in the streaming space. The company is evolving to meet the new age of media consumption demands via streaming and on-demand content. Disney’s streaming initiatives will continue to be major growth catalysts moving forward. Disney is a compelling buy as its legacy theme park business comes back online in conjunction with its streaming initiatives.

Noah Kiedrowski
INO.com Contributor

Disclosure: The author holds shares in AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY, and USO. He may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.

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Source: Disney – Flexing Its Pricing Power Muscle

Opinions Stock Market News

27 Sep

Ichimoku Cloud Analysis 27.09.2021 (EURUSD, AUDUSD, NZDUSD)

Article By RoboForex.com

EURUSD, “Euro vs US Dollar”

EURUSD is trading at 1.1718; the instrument is moving below Ichimoku Cloud, thus indicating a descending tendency. The markets could indicate that the price may test the cloud’s downside border at 1.1730 and then resume moving downwards to reach 1.1595. Another signal in favor of a further downtrend will be a rebound from the descending channel’s upside border. However, the bearish scenario may no longer be valid if the price breaks the cloud’s upside border and fixes above 1.1805. In this case, the pair may continue growing towards 1.1905. To confirm further decline, the asset must break the downside border of the Triangle pattern and fix below 1.1680.

AUDUSD, “Australian Dollar vs US Dollar”

AUDUSD is trading at 0.7280; the instrument is moving inside Ichimoku Cloud, thus indicating a sideways tendency. The markets could indicate that the price may test the cloud’s upside border at 0.7290 and then resume moving downwards to reach 0.7115. Another signal in favor of a further downtrend will be a rebound from the descending channel’s upside border. However, the bearish scenario may no longer be valid if the price breaks the cloud’s upside border and fixes above 0.7350. In this case, the pair may continue growing towards 0.7445.

NZDUSD, “New Zealand Dollar vs US Dollar”

NZDUSD is trading at 0.7016; the instrument is moving below Ichimoku Cloud, thus indicating a descending tendency. The markets could indicate that the price may test the cloud’s downside border at 0.7040 and then resume moving downwards to reach 0.6905. Another signal in favor of a further downtrend will be a rebound from the descending channel’s upside border. However, the bearish scenario may no longer be valid if the price breaks the cloud’s upside border and fixes above 0.7095. In this case, the pair may continue growing towards 0.7185.

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Financial News Forex and Currency News

27 Sep

German Consumer Confidence & Election Results

By Orbex

As anticipated, the German federal election results came in with a narrow plurality for the center-left SDP party.

This is the closest result in history, suggesting that it will be the most difficult coalition negotiation as well. Some estimate the government negotiations to last until even Christmas. This means that Merkel could remain Chancellor for several more months.

Markets, then again, might not be so happy with the uncertainty.

The narrow results have allowed for a wide range of interpretations. Some media headlines announced that Germans demanded change, while others proclaimed Germans voted for continuity.

Thankfully, the major concern for the markets has been averted. In fact, they avoided a hard-left coalition of SPD, Linke, and Greens, who would have taken the government reins, and pushed up taxes and increased regulations.

Where to now?

Although Schultz’s SPD gained the most votes, the left-leaning parties failed to obtain an overall majority.

This means the center-right, and Merkel’s successor, Laschet of the CDU will try to form a “Jamaica” coalition, of CDU, plus liberal FDP and the Greens. That had been attempted before, but talks broke down as the pro-business FDP and pro-environment Greens could not agree on a platform.

Last time, the “escape valve” was to return to an CDU-SPD “grand coalition”. However, that option is not on the table anymore, since the sum of votes from both parties does not equal a majority either. This allows for alternatives of a “grand coalition” with the FDP or the Greens.

Nonetheless, given the political costs that the “grand coalition” implies for both parties, this could generally be a very distant, and last resort alternative.

Out of the two options, however, an CDU-SPD-FDP alliance is the less impossible one. The FDP has been in government before and has a more pragmatic approach than the other “minor” parties.

What about the people?

The uncertainty in the government provides uncertainty in the market. This is particularly in terms of where regulatory pressures and tax increases will lie. That said, it might leave many businesses on hold in terms of investing, providing a slight drag on the economy for the next couple of months.

On the other hand, consumers generally won’t really change their habits because of the election. That doesn’t mean it’s good news though, as Germany heads into autumn and worries about covid still persist.

Tomorrow we have the release of GfK Consumer Confidence, which analysts expect to move further negative to -1.8 from -1.2 in August. Unfortunately, this measure of consumer sentiment never recovered from the pandemic.

Regulatory reaction

Later in the day, analysts anticipate ECB’s Lagarde to give a speech in the bank’s Central Banking Forum. In fact, they will be going over her remarks with a fine-tooth comb looking for hints about future rate policy.

However, with the largest economy in Europe in somewhat of a regulatory limbo until they decide on the coalition, the ECB is likely to have ample room to keep monetary policy easing in place.

In turn, this might make the regulators’ job easier because there is less inflation. The problem is that less inflation is because of lower growth.

Article by Orbex

Economics & Fundamentals Financial News

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