EUR/USD Daily Fundamental Forecast – September 26, 2017

As we had mentioned in our forecast yesterday, the euro crashed lower on concern over the election results in Germany. The trigger was the increase in global risk due to North Korea but the underlying factor was the German elections results. What should be noted is the fact that this crash lower has pushed the euro through the important support region at 1.1860 which points to a further move lower in the short and medium term as well.

EURUSD Crashes Lower On German Concerns

The German elections were held over the weekend and the result was an expected majority for the party led by Merkel. But this majority is not enough for Merkel to form a government on her own and now she has to rely on a coalition to get the required majority and start the running of the government. This could mean that the position of Merkel as a strong leader could get reduced in due course of time. This could also mean that the German government could have opposing voices within it which may not allow Merkel to carry on smoothly with her agenda.

With these kinds of domestic troubles and uncertainties, it remains to be seen how much Merkel would be able to focus on the Eurozone and her leadership in it, which is so crucial for the zone. It is for these mitigating factors that the euro suffered yesterday. Then, later in the day, we had the customary threat from North Korea which basically spooked the markets once again causing the euro to move even lower.

Looking ahead to the rest of the day, we have the Fed Chief Yellen making a speech later in the day and that is the only event of note as far as the US is concerned. The action in the markets due to the German elections results and North Korea basically drowned out the speech from Draghi yesterday and it remains to be seen what effect Yellen would have on the EURUSD pair. But with the break through the 1.1860 region, the pair is very close to changing its trend from up to down.