30.10.201807:54 Forex Analysis & Reviews: EUR / USD in the spotlight of Germany and Italy

The euro-dollar pair continues to fluctuate in a fairly wide price boundary, reacting to a controversial fundamental background. Emotions about the decline in the US price index for personal consumption expenditures somewhat subsided, after which the focus of market attention shifted to European events. Germany and Italy were once again heard and in a negative context again.

Even in the morning, bulls of the EUR/USD pair attempted for a corrective growth, testing the 14th figure. Yet, all efforts were in vain after German Chancellor Angela Merkel announced that she would resign as head of the ruling Christian Democratic Union. The failures for the CDU elections in Hesse after the same failures of Merkel in Bavaria speak of a decline in the popularity of Christian Democrats. Although formally they scored the largest number of votes, this result cannot be called a victory in the last election and the CDU scored 11% more. In turn, the representatives of the Social Democratic Party of Germany (part of a coalition with Merkel) received the weakest support in the last 72 years for only 19%.

Merkel's statement worried the markets because she had repeatedly stated that the head of the CDU should be politically responsible for the course, and therefore, it should hold the post of chancellor of the country. As soon as it became known about the decision of the Chancellor, the euro updated at least a day since rumors about her resignation appeared among traders. However, the official position soon became known. First, Merkel remains Chancellor until 2021 but will not participate in the next electoral race, and second, she will re-nominate her candidacy for the position of head of the CDU in early December of this year.

After that, the single currency received little support, but not for long, as the reaction of the SPD leader to the failed elections in Hesse became known. According to Andre Nales, the party may leave the coalition alliance if the Social Democrats next year show the same pitiful result. In this case, the entire coalition structure has already reeled, because the "toxicity" of the CDU / CSU will continue to lower the SPD rating, increasing the likelihood of a collapse of the coalition and the subsequent political crisis. The German "coalition", which lasted for more than half a year, is still fresh in memory. Merkel was more difficult than ever to bring the interests of politicians under a common denominator.

Therefore, possible early elections will completely change the political landscape of Germany, taking into account the results of local elections, as well as the latest polls. Also, we should not forget about the growing popularity of right-wing political forces that are against European integration processes. Representatives of the "Alternatives for Germany" passed not only to the Parliament of Bavaria but also to Hesse, reflecting the popularity of European skeptics. A recent sociological studies show, for the first time in the history of its short existence, AdG became the second most popular party in Germany, beating even the Social Democrats. In the first place is the ruling bloc of the CDU / CSU, but their support from the Germans is melting from year to year. In other words, Germany can take the path of Italy, where representatives of right-populist forces came to power.

Thus, the German elections showed a dangerous tendency, which could lead to a large-scale political crisis and the prevalence of Euro-skeptical sentiment among the Germans. Of course, this fact put pressure on the European currency, which is already under pressure from the Italian question. Thus, according to the vice-premier of Italy, he is not worried about possible fines from Brussels, since his country already pays the EU hundreds of millions of euros in various penalties.

He again stressed that the country's budget will not be revised. Moreover, in his opinion, the governments of each country of the Alliance should have the right to manage their money themselves, without the "guardianship" of Brussels. By the way, the next elections of the European Parliament will take place next year, and many potential candidates (and, quite weighty ones like Orban or Le Pen) are going to lobby for the idea of expanding the sovereignties of the EU countries. Of course, it's too early to talk about it but this factor complements the general fundamental picture of the day.

In other words, the bulls of the eur / usd pair will not be able to seize the initiative and turn the trend in the near future. The price increase will only be of a corrective nature either due to the possible weakness of the dollar or due to positive comments about the Italian budget. The political situation in Germany is unlikely to have a long-term impact on the market due to Merkel's voiced position. However, it will be only possible to talk about the trend reversal when the Italian question is finally removed but there are no prerequisites for this yet.