The Euro began last week after the breakdown of talks to form a new Coalition Government but as these were back on track on Friday, and incoming data showed a very buoyant Eurozone economy – the PMI’s were at 17-year highs – the EUR surged to be the strongest currency of all last week. It opened at USD1.1760, hit a low of 1.17715 on Tuesday morning but then soared on Friday to hit 1.1930; its best level since September 25th.
Looking ahead, we’ll likely see in currency markets a repeat of the tussle between economics and politics. Thursday brings the flash estimate of Eurozone CPI in November but before then, concerns about the strength, or otherwise, of German Chancellor’s Angela Merkel’s position are likely to dominate trader sentiment.
The immediate loser in the Coalition talks was SPD leader Martin Shulz, though his party may still be able to extract significant concessions – perhaps the Finance Ministry – as the price for its ongoing support of the CDU/CSU. “Hour zero: country without direction, unity, chancellor?” was how Der Spiegel, Germany’s leading current affairs magazine, summed up the crisis. Its rival, Stern, depicted Merkel upside down with the headline: “Free fall . . . end of the Merkel era”. It promises to be a fascinating week ahead for the Single European Currency.