FX.co ★ Equation for euro: failure + growth attempt = relative stability

A new week for the European currency began with a relative balance in the EUR/USD pair. However, the euro is still taking a risk, trying to hold its gains

The elections in Germany have made a great impact on the dynamics of the single currency. The euro has remained stable and risen slightly. According to the German Bundestag election results (exit poll), held on Sunday, September 26, the provisional results are the following: the CDU claimed 20%, the CSU got 5% (the CDU/CSU won 25% in total), the SPD fell to 25%, the Alliance 90/the Greens 15%, the AfD won 11%, the FDP 11% and the Left Party took 5%.

Notably, the Christian Democratic Union of Germany, forming with the CSU a political alliance in the Bundestag, is still among the leaders. Moreover, the CDU representatives became Presidents of Germany six times and were elected Federal Chancellors five times. The main bloc principles are adhering to the Christian ethical foundations of politics and combining them with the social market economy. The party also makes a commitment to support Western values, trying to strengthen the position of Germany in the EU. Angela Merkel is the leader of the ruling coalition, Chairman of the CDU and at the same time Chancellor of Germany. However, she will turn the party over to her successor soon. A new government with a new chancellor will be formed for the next 4-year term. Remarkably, Merkel has held her post for 16 years.

This situation had a positive effect on the euro, which resisted the German political battles. At the end of the previous week the euro fell by 0.14% to 1.1719. However, later it managed to rise to 1.1724. On Monday morning, September 27, the EUR/USD pair was trading near 1.1722, gaining momentum.

The American currency was slightly down against its European rival, having lost the previous week's momentum and its growth opportunities. The active market reaction to the FOMC meeting has come to naught, though the coming timing of the Fed rates' raising provided a strong support for USD. Consequently, the greenback quickly retreated to lower levels, slightly losing ground against the euro.

After the Fed meeting, the dollar gained momentum, though experts believe the current balance in the EUR/USD pair is relative. Notably, the regulator will begin a gradual balance reduction next month. Reinvestment is expected to decrease by $10 billion a month ($6 billion out from treasury bonds and $4 billion from mortgage-backed securities). This amount will increase by $10 billion each quarter until it reaches $50 billion.

The European currency is still affected by the parliamentary election results in Germany. Notably, the CDU/CSU alliance, headed by Angela Merkel has gained a victory so far. However, this party won only 25% of the votes, which is the worst result in the last few years.The bloc of the Christian Democratic and Christian Social Unions took second place. According to analysts, in case the German center-left coalition strengthens its position, the growth potential in the EU will be high. This scenario is favorable for the euro in the medium- and long-term planning.

The current situation on the global debt market contributes to the correctional dynamics of the European currency. Many experts expect the EUR/USD pair to fall to 1.1700. Geopolitical difficulties and lack of compromise between the US Congress and President Joe Biden's administration on tax reform might turn out to be a risk factor for the greenback. The elimination of these risks will lead to the EUR/USD pair stabilization in the current range.