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The FxPro Analyst Team

Forex: German & New Zealand Elections, Japan next?

BLGCRTV

The results of the German Election have re-elected Chancellor Angela Merkel for a fourth term. Her CDU party won fewer votes than was expected and Chancellor Merkel commented that “the CDU would have hoped for better result, but we mustn’t forget – looking back at an extraordinary challenge – that we nevertheless achieved our strategic objectives: we are the strongest party. We have mandate to form the new government and we will form the new government.” Chancellor Merkel will now be tasked with forming a coalition Government which is likely to take several months. Per the latest results the CDU won 32.5% of the vote compared to the 2013 election that saw them win 41.5%. The normally strong SPD’s 20% of the vote is a post war low for the party, whilst the right-wing nationalist AfD party, appears to have won 13.5% of the vote, making it the country’s third largest party. With the AfD securing third place this may cause concerns, as it may disrupt Merkel’s plans for further Eurozone integration.

In New Zealand, Prime Minister English’s National Party won the most votes in their General Election, although it was not sufficient to ensure a majority. The uncertainty of when a majority coalition will be formed has weighed on the Kiwi.

In Japan, Prime Minister Abe is expected to announce that the country will hold a snap election in October.

GBP was sold against USD and its major counterparts on Friday on news that the credit ratings agency, Moody’s, announced it had downgraded the United Kingdom’ long term issuer rating to AA2 from AA1 and changed the outlook to stable from negative. GBP had suffered earlier in the day as Prime Minister Theresa May had failed to give any substantive details on how the United Kingdom might retain preferential access to the Eurozone’s single market. Prime Minister May’s speech in Italy gave little detail and provided no new information as to the direction of the discussions, and outcomes, between the UK and Europe.

North Korea’s Foreign Minister, Ri Yong-ho, addressed the United Nations on Sunday, providing more rhetoric on the war of words between the US and North Korea. He told those assembled that “it was all the more inevitable” that the regime’s rockets would “visit” the US mainland. Ri also added that it was Trump, not Kim, who was on a “suicide mission”. He likened Trump to “the sound of a dog barking” and commented that he felt sorry for Trump’s aides when asked about the Presidents “rocket man” nickname for Kim. There has been the inevitable flight to safe havens, with JPY and Gold improving against USD. The markets are keenly watching for the next “round” of rhetoric which could lead to more risk-off sentiment in the coming days.

EURUSD is 0.25% higher in the early trading session; currently trading around 1.1925.

USDJPY moved higher overnight to currently trade around 112.25.

GBPUSD suffered with a credit downgrade and lack of information from Prime Minister May on Brexit solutions on Friday. GBPUSD traded as low as 1.3449 on Friday, before retracing higher over the weekend to currently trade around 1.3540.

Gold is down 0.35% in early Monday trading, currently trading around $1,294.

WTI traded in a relatively narrow range on Friday and is little changed overnight. Currently, WTI is trading around $50.60pb.

Major economic data releases for today:

At 09:00 BST, the CESifo Group will release German IFO-Business Climate sentiment index, Current Assessment & Expectations for September. The Institute surveys more than 7,000 enterprises on their assessment of the business situation and their short-term planning. A release above consensus will see EUR gain, with a lower than forecast release putting downward on pressure on EUR.

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