EUR/USD struggles to defend 1.1700 as German election polls challenge optimists

  • EUR/USD fades bounce off five-week low flashed last week.
  • German election polls challenge Angela Merkel’s reign, dim bloc’s economic reform hopes.
  • Risk-off mood underpins US dollar’s safe-haven demand, US Treasury yields cheer Fed tapering concerns.
  • US Durable Goods Orders, risk catalysts eyed for fresh impulse, updates from Germany, Evergrande are the key.

EUR/USD bears remain at the loggerheads with the bulls after a three-week downtrend around 1.1720 amid early Monday morning in Asia. In doing so, the major currency pair remains pressured near August month’s low as fears over a political deadlock in Germany, the bloc’s powerhouse, challenge the economic recovery hopes.

As per the latest poll, Angela Merkel’s center-right Christian Democratic Union (CDU) lags a bit behind center-left Social Democrats (SPD). ”The center-left Social Democrats (SPD) were on track for 25.5% of the vote, ahead of 24.5% for Merkel’s CDU/CSU conservative bloc, projections for broadcaster ARD showed, but both groups believed they could lead the next government,” Reuters reported.

Although a coalition government is a sure outcome, SPD’s more power over Merkel’s resignation after 16 years of performance question the region’s future due to Germany’s powerhouse status. Reuters expressed the conditions while saying, “Nothing happens in Europe without German leadership, according to an old adage. That makes Sunday’s tight election in the region’s biggest economy particularly disconcerting.”

Read: German Elections Preview: Three EUR/USD scenarios for the post-Merkel dawn

Elsewhere, US Federal Reserve (Fed) policymakers reiterate tapering concerns and back the US 10-year Treasury yields to refresh a three-month top. Also favoring the US dollar are the concerns over China’s Evergrande and uncertainty over US budget allocations and the debt ceiling. Recently, US House Speaker Nancy Pelosi stepped back from her previous hints to put the stimulus bill on the House floor on Monday.

Amid these plays, equities manage to stay firmer on Friday while the S&P 500 Futures print mild gains by the press time.

In addition to the German Election updates, US Durable Goods Orders and the risk catalyst are also important to watch for near-term EUR/USD direction.

Technical analysis

In addition to a downward sloping trend line from September 03, a convergence of 50-DMA and 20-DMA, respectively near 1.1760 and 1.1785, also challenges the EUR/USD buyers.

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