German parties have been negotiating hard and long in order to form a government coalition in the past few days. German chancellor Merkel stated that all of the parties involved in the coalition negotiations will have to make painful compromises. CDU currently seem to lack leverage on the negotiating table and we could see it making more painful compromises than the SPD on the issues of temporary workers and healthcare. SPD officials on the other side, seem to be confident that they are on the right track, however work still needs to be done. We see the case for the partners to reach an agreement at any given moment until the end of the week and for the EUR to strengthen upon announcement of the agreement.
The EUR/USD moved in a sideways manner yesterday testing the 1.2355 support line. We see the case for the pair to continue to trade in a sideways manner in the short term and it may experience some bullish pressures as the US stock market stabilizes even further. Should the pair find new selling orders we could see it breaking the 1.2355 support line and aim for the 1.2230 support area. On the other hand, should the pair find buying orders, we could see it breaking the 1.2495 resistance line aim for the 1.2600 resistance level.