Where does the euro go from here?
Technicians warn the euro has farther to fall, but politics suggest it will end the year higher
Bloomberg writes Wednesday that trading charts point to more room for the euro to fall in the short term:
The euro’s miserable month may not be over, if trading patterns are anything to go by. The common currency hit an almost six-week low versus the dollar on Wednesday. While the day’s move may owe more to greenback strength than regional concerns, it follows losses in the wake of the German election and sets the euro up for its first losing month since February. Unfortunately for bulls, technical analysis of the currency’s trading charts offers little comfort on its short- term prospects.
Asia Unhedged thinks the market has misread the German elections, which produced a resounding rejection of pro-European policies of all parties. The most expressly pro-European candidate, European Parliament President Martin Shulz, led the SPD to oblivion, while the mildly Euro-skeptic Free Democrats garnered the anti-European vote in the west of Germany and the rightwing populist AfD picked up the protest vote in the eastern half of Germany.
The Free Democrats will get the Finance Ministry; CDU Finance Minister Wolfgang Schaeuble has already indicated that he’ll leave his job and become president of the Bundestag. Angela Merkel will remain chancellor, but she owes her job to the votes of older Germans, especially pensioners, namely the people who were hurt the most by the European Central Bank’s policy of negative interest rates.
The light at the end of the tunnel for the euro, in short, is the headlamp of the oncoming express. It may take a few weeks for the coalition negotiations in Berlin to produce a government, and for the government to clarify its policy, but the result won’t be kind to the quantitative easers at the European Central Bank. The euro will finish the year higher.