Euro Fades After Brief German Election Boost
| Action Insight Mid-Day Report 2-24-25 |
Euro Fades After Brief German Election Boost |
Euro’s brief post-election rally faded quickly, as investors welcomed CDU/CSU’s victory but remained cautious due to lingering uncertainties around coalition formation and fiscal policy. While a relatively centrist government comprising CDU and the Social Democrats would provide stability, challenges surrounding the "debt brake" reform and defense spending continue to cloud the outlook. A coalition with the Greens and Social Democrats would likely be the most market-friendly outcome. However, even with these three parties combined, they fall short of the two-thirds parliamentary majority needed to reform the "debt brake", which limits Germany’s structural budget deficit to 0.35% of GDP. Meanwhile, far-right AfD remains excluded from coalition talks, as Friedrich Merz has ruled out working with them. This situation presents a fiscal dilemma for Germany, particularly given geopolitical uncertainties. The government faces pressure to increase both defense spending and broader fiscal stimulus, but policy divisions persist. The Left Party favors loosening the debt brake, but only for social and economic spending, not for increased defense expenditure. These divisions could complicate budget negotiations and delay much-needed investment decisions. Bundesbank weighed in on the debate today, backing an increase in the government's deficit cap, citing the need for higher public investment while Germany’s debt ratio remains low. In its monthly report, the Bundesbank argued that adapting the debt brake's borrowing limit to current economic conditions is justified, but also stressed the importance of reviewing fiscal priorities and ensuring efficient use of financial resources.... |
EUR/USD Mid-Day Outlook Daily Pivots: (S1) 1.0436; (P) 1.0474; (R1) 1.0499; More... EUR/USD's rally attempt today quickly lost momentum and intraday bias stays neutral. Outlook is unchanged that price actions from 1.0176 are forming a corrective pattern only. Strong resistance is expected from 38.2% retracement of 1.1213 to 1.0176 at 1.0572 to limit upside. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817. | |
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
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| 21:45 | NZD | Retail Sales Q/Q Q4 | 0.90% | 0.60% | -0.10% | 0.00% | | 21:45 | NZD | Retail Sales ex Autos Q/Q Q4 | 1.40% | 0.30% | -0.80% | -0.60% | | 09:00 | EUR | Germany IFO Business Climate Feb | 85.2 | 85.8 | 85.1 | 85.2 | | 09:00 | EUR | Germany IFO Current Assessment Feb | 85 | 86.5 | 86.1 | 86 | | 09:00 | EUR | Germany IFO Expectations Feb | 85.4 | 85.2 | 84.2 | 84.3 | | 10:00 | EUR | Eurozone CPI Y/Y Jan F | 2.50% | 2.50% | 2.50% | | 10:00 | EUR | Eurozone CPI Core Y/Y Jan F | 2.70% | 2.70% | 2.70% |
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