There's no major upset per se as Friedrich Merz's CDU/CSU alliance can celebrate, securing ~28.5% of the vote. That puts them well in position to lead the next government.
The biggest loser? That goes to current chancellor Olaf Scholz's SPD as they lost a huge chunk of support to end with roughly ~16.4% of the vote. That is the worst result by the faction in a federal election. Ouch. The Greens are the other notable standout, securing ~11.6% of the vote but also down slightly from their previous showing.
Well, it's all about negotiating a coalition now to form the next government in Germany. Merz's conservatives are not going to team up with the far-right obviously, so that leaves only the SPD and Greens as potential coalition partners.
One key thing to be mindful about when viewing the coalition is their respective views n the German debt brake.
So, the CDU/CSU alliance are in favour of maintaining the debt brake. They view it as a crucial mechanism to ensure fiscal responsibility. As for the SPD, there is some divide with some lawmakers wanting a reform or for it to be suspended temporarily (as it was during the Covid pandemic) to allow for increased spending. And lastly, the Greens have long been calling for a reform of the debt brake in order to push for investments into environmental sustainability and infrastructure.
But if Merz wants support from the other parties, he will have to find some willingness to give a little. So, that could be what markets are hoping will happen.
The only issue is there will be some making a fuss about rising debt concerns. But I would argue that with Germany holding one of the lowest debt-to-GDP ratios in the Eurozone, it isn't going to be a major problem really. At least not in the short-term.
Circling back to the EUR/USD chart above, it looks like buyers are keeping poised in search of an upside breakout above 1.0500. But is it coming a little too slowly and too late?
That means buyers will have to really do a lot more to convince of a stronger break higher, with the push above 1.0500 being just a starting point. There also needs to be a strong follow through to break the 100-day moving average for this to turn into a stronger trend beyond this week.
This article was written by Justin Low at www.forexlive.com. Read More Details
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