The lack of surprises in the German Bundestag elections allowed the EURUSD to breathe a sigh of relief. The currency pair briefly rose above 1.05, but further gains remain uncertain given the final implications of the CDU/CSU victory and mixed signals from European Central Bank (ECB) officials.
Bullish momentum at the open stalled around the 100-day exponential moving average (EMA100, dark purple, 1.05-1.053), which also serves as the upper limit of the consolidation phase that has been ongoing since December. Source: xStation5
Coalition Without a Majority
The new Bundestag seat distribution closely mirrors recent polls. The slightly higher-than-expected result for the far-right AfD (21% vs. the anticipated 20%) did not stop EURUSD’s rebound, indicating that markets had already priced in the populists’ strong position in Germany. However, the CDU/CSU victory is somewhat hollow. The most likely coalition between CDU/CSU and SPD (the party of outgoing Chancellor Olaf Scholz) will lack a constitutional majority, forcing them to rely on support from AfD, the Greens, or the Left Party to implement their policy agenda, i.e. lower taxes, looser public debt rules, and stricter migration policies.
That said, despite the challenges, a formed coalition is expected to be better received by the markets than the previous uncertainty and lack of a stable government.
ECB: Dovish or Hawkish?
The weekend brought several key comments from ECB members. On the dovish side, François Villeroy of the Bank of France suggested that the Eurozone deposit rate could drop to 2% before summer, significantly ahead of the current market consensus (which expects 2% in September/October). On the hawkish note, Pierre Wunsch of the Belgian National Bank warned against ‘sleepwalking’ into further rate cuts, emphasizing that everything ultimately depends on data. He underlined, however, the relatively limited inflationary risk.
Overall, the ECB appears confident in a relatively smooth monetary policy path for 2025. Policymakers, by downplaying inflation risks, are implicitly supporting a gradual move to 2% to stimulate weak economic conditions in Europe.
The money market is pricing in three full rate cuts in the Eurozone, bringing rates from 2.75% to 2% by October. Source: Bloomberg Finance L.P.
The material on this page does not constitute financial advice and does not take into account your level of understanding, investment objectives, financial situation or any other specific needs. All information provided, including opinions, market research, mathematical results and technical analyzes published on the Website or transmitted To you by other means, it is provided for information purposes only and should in no way be construed as an offer or solicitation for a transaction in any financial instrument, nor should the information provided be construed as advice of a legal or financial nature on which any investment decisions you make should be based exclusively To your level of understanding, investment objectives, financial situation, or other specific needs, any decision to act on the information published on the Website or sent to you by other means is entirely at your own risk if you In doubt or unsure about your understanding of a particular product, instrument, service or transaction, you should seek professional or legal advice before trading. Investing in CFDs carries a high level of risk, as they are leveraged products and have small movements Often the market can result in much larger movements in the value of your investment, and this can work against you or in your favor. Please ensure you fully understand the risks involved, taking into account investments objectives and level of experience, before trading and, if necessary, seek independent advice.
