The coalition supporting the German government could prove to be unstable and dissolve, if the three parties do not find common ground on the immigration issue. German chancellor Merkel, accepted a two week’s ultimatum yesterday, practically to strike a new EU deal on immigration. The ultimatum was given by CSU, one of the ruling parties and if there is no agreement in the next EU summit, Germany’s government could destabilize, with wider repercussions on EU’s asylum policy. Further developments on the before mentioned matter could create further volatility for the common currency.
German SPD party’s conference decided yesterday to back the preliminary deal struck between the leaderships of the SPD, CDU and CSU. Currently the path clears for the three parties to refine the preliminary deal and formulate a political platform to govern Germany. Negotiations are to start immediately, last until the 12th of February, final approval vote should be given by the 440K SPD party member’s mid-March and Merkel should be sworn in as chancellor by end of March, should everything go as planned. German media suggested however that the SPD conference delegates in the conference were not totally convinced, they just gave Schultz a chance to finalize the deal and present it. It is expected of him to bring better results for the SPD during the negotiation process and should that not be the case we could see another political thriller by mid-March as the SPD members will vote for the deal.
The EUR/USD broke the 1.2230 support level during today’s Asian morning and continued to hover slightly below it. We see the case for the pair to continue to trade in a sideways manner, however we also see the risks tilted to the upside as the European market reactions could kicking in on the news. The pair could prove sensitive to any further news regarding the US government shutdown, as well as any headlines regarding ECB meeting coming Thursday. Should the pair come under buying interest it could break the 1.2230 and aim for the 1.2355 resistance level. Should it come under selling interest, it could break the 1.2100 support level. If the 1.2100 support level is breached we see the case for the pair to continue to hover slightly below it.