Investors were quick to jump the gun when news hit the wires, but given time to digest it may not be such a bad thing
All it takes is a little bit of a scare to inject a whole lot of nervous energy into the market these days. Reaction to what seems like late night news from yesterday as European traders get up this morning sent the EUR down.
EUR/USD lost about 40 pips on the back of news saying the Berlin's SPD section has rejected the proposal of coalition talks to form a Grand Coalition in Germany. Over the weekend, the state of Saxony-Anhalt voted similarly. These are the few states to have voted on the decision so far, and it does impact sentiment a little - just like your typical election day where you count the votes and see who leads during the day.
Unless this becomes a common trend in the voting to come, the EUR should hold steady - and in fact, EUR/USD is back up now to 1.2255; pretty much paring most of its losses from the earlier dip.
SPD leader Schulz has until Sunday to get his party votes in order - and the two current votes from the eastern side of Germany should be taken a little more lightly.
As one of our readers also pointed out earlier, the big one here is the state North-Rhine Westphalia - where most of the SPD delegates come from.
Ahead of talks with his SPD members there yesterday, Schulz remained confident as said that he was "optimistic that majority will vote for talks with Merkel" and that the "SPD leadership is united behind exploratory result talks result".
So while the initial results doesn't suggest so, it's a bit early to tell if talks within Schulz's party are turning sour or otherwise. But in any case, this is a taste of things to come with the EUR. Political risks in Germany and Italy looks to have a strong grip in driving the common currency in the near-term. And if the ugly side of things start showing, that bodes ill for the euro.
(As I write this, EUR/USD has now dropped a little back down to 1.2237).
