EUR/USD Fades Gains as Uncertainty Mounts After Unclear Election Mandate | Errante
Market Overview
The EUR/USD significantly gained on Monday due to Germany’s elections. However, the gains are slowly receding amid unclear mandates and tariff jitters.The EUR/USD started the week on strong footing with an upside gap and marked a high at 1.0528. The upside move was attributed to the results of the German elections. The CDU/CSU alliance won 28.5% of seats, while AfD surprised with 20.8% votes. Both parties are likely to form a coalition government.However, the markets foresee uncertainty as the formation of government could be delayed. In that case, the Euro could fall. As of now, the Euro has slowly reversed the daily gains partially. However, the risk tone is still favorable.The potential new Chancellor of Germany, Merz is popular for his views against the debts. He wants to curtail the debts and maintain tightening. Hence, a new government could dictate the European Central Bank to tweak its easing policy.
Fundamental Analysis
On the tariff front, the US President remains firm with imposing a reciprocal tariff on the Eurozone. Thus, the Euro remains vulnerable to tariff jitters. Meanwhile, the Ukraine-Russia peace deal shows no clear view at the moment. However, all stakeholders are gradually moving towards Trump’s proposal. If both countries agree on a peace agreement, the risk sentiment can be boosted. Eventually, the Euro and other risk assets will benefit while the US dollar will tick down.The economic calendar is too light today with no major event. However, the coming days have the US GDP and US Core PCE Index. Both data are key to watch as these help the Fed to shape its future monetary policy. Meanwhile, German CPI data is also due on Friday.
Technical Analysis:
The 4-hour chart of the EUR/USD shows a choppy price action after the rise. The price is wobbling around 1.0500. The key SMAs point to further gains while the RSI is retreating. The inability to sustain above 1.0500 could add selling pressure and push the prices to 1.0450 ahead of 1.0400. On the upside, the bulls need to clear the 1.0530 resistance.
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