Germany sneezes – Euro falls ill
By Yann Quelenn
The euro has slid slightly against the US dollar, and we believe that will continue until Germany solves its political uncertainty. When Germany sneezes, the Euro gets a cold.
Chancellor Angela Merkel is in difficulty. Her attempt to build a governing coalition has failed, the first such post-election failure in the post-war republic. The proposed coalition of Christian Democrats, Liberal Democrats and Greens broke up over migration. Liberals refused to continue current policy, which has allowed 1.2 million migrants in 2015-16. They want tighter borders.
Merkel’s options are to form a minority government or to hold another election. Neither is appealing – and the clock is ticking.
AUD tumble to continue
By Arnaud Masset
With Australia’s central bank meeting on 5 December and Q3 GDP results released the next day, we believe the Aussie dollar will by then break of the US$0.75 threshold and open the road towards $0.7330 (low of 9 May).
The Aussie extended losses on Tuesday morning with AUD/USD testing US$ 0.7530 support. Minutes of the central bank’s November meeting showed an expected dovish tone, with concerns about jobs and the persistent weakness in wage growth. Sovereign rates are sliding, and the spread between Australian and US treasuries reached a new bottom. The 2-year spread fell to 0.01%, while the 10-year spread slid to 0.18%.