Forecasts EUR/USD and trading strategy for the week of September 25, 2017

The opening of the forex on a gap downward by almost 50 pips for EUR/USD due to the weakening of the electoral base of Angela Merkel. The chancellor has been elected with the worst result for the CDU/CSU since 1949, with 32.9 % of the votes.

The SPD is expected to get about 20 % of the vote while the AfD (nationalists) should get 13 %. It was 60 years ago that a far-right party had not returned to the Bundestag (German parliament). The AfD is the same that comes in second position in East Germany. And the participation rate in this election was high, suggesting that a large segment of the German population is not really happy… according To the federation of social assistance in German, about 10 % of the German population with a job quickly out from under the threshold of poverty ! Even the IMF is beginning to worry about…

EUR/USD, therefore, acknowledge the blow in the face of the erosion of the popularity of Angela Merkel. But the most important of which is that the chancellor retains the power. The decline of the Euro, therefore, should not be spoken, even if these figures announced may be the twilight of the reign of the chancellor. We now need to monitor how much time are going to get the parties to agree. If the SPD remains in the opposition, it will be difficult to identify a majority, but I hope that the Chancellor will be able to lead his boat.

The cross is now inside a channel which is narrowed and looks more and more to a triangle of which the break-out of its terminals may trigger a strong speculative movement. The technical setup calls in the short term for a break to the downside. It will probably not take much to initiate a fall.

But we are of the opinion that this break will be a buying opportunity. The upward trend is still not seriously questioned. The monetary tightening of the FED and this election without the panache of Angela Merkel give grain to grind to the downside but they will likely need an economic calendar from in their meaning, in order to enhance the downward pressure currently being felt on EUR/USD.

You can check out our analysis of the economic calendar for the week. There you will find the essential statistics that should be monitored. All in all, these are especially durable goods orders, growth and inflation will need to be monitored.

We believe that the current uptrend is the trend for the moment, but in the very short term, a test of 1.1850, 1.18 or even 1.1750 is not ruled out. If Angela Merkel fails to form a coalition «Jamaica» (because of the colors of the three parties are the CDU, the greens and the liberals), and that new elections should be called, it will be necessary to expect that the Euro is falling more heavily. In fact, if Angela Merkel’s tomb, a pillar of stability would disappear in Europe and this could shake the markets.

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