GERMANY: Election Exit Polls Leave Some Uncertatinty On Coalition Possiilities
Feb-23 18:14
Exit polls on the German election so far leave some uncertainty on potential coalition outcomes, while the possibility of debt brake reform apperas likely as of now.
- Exit poll results stand at: CDU/CSU 28.9% (24.1% 2021), SPD 16.2% (25.1% '21), Greens 13.0% (14.8% '21), FDP 4.9% (11.5% '21), The Left 8.5% (4.9% '21), AfD 19.9% (10.3% '21), BSW 4.8% (new).
- Both FDP and BSW remain with some chances of gaining above 5% of votes ultimately - and would not get any Bundestag seats if they fail to do so as per a constitutional threshold.
- The "Grand Coalition" of centre-right CDU/CSU and centre-left SPD (which was seen as the most likely ahead of the election) would only have a Bundetag majority if both FDP and BSW will remain below named threshold. Current polls tilt towards that but leave some uncertainty.
- If pro-business FDP were to make it into Bundestag, that would make a "Germany" coalition (consisting of CDU/CSU, SPD and FDP) the most probable. Such a three-party coalition outcome would be seen to bring less stability to the government. Another option in that case would be the "Kenya" coalition (CDU/CSU, SPD and Greens) - which apperas rather unlikely, though, as CSU and Greens have partially opposing views.
- From a debt brake point of view, a 2/3rds Bundestag majority in favour of parties open for reform seems likely from current polls. However, the Left will likely be needed for such reform, and might push for some concessions from the governing parties then, complicating negotiations.
- More clear results are expected overnight.
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STIR: Midday SOFR Option Update
Jan-24 18:13
Call structures continue to drive volume in addition to some chunky vol selling via July'25 strangles:
- 11,750 0QK5 96.62/96.81 call spds
- -3,000 SFRH6 95.37/95.62/96.25/96.50 iron condor, 14.0 ref 96.06
- +10,000 SFRM5 96.00 call spds 11.0 ref 95.92
- 5,000 SFRM5/SFRU5 95.75/95.87 call spd spds, cab net/Sep over
- -10,000 SFRN5 95.62/96.37 strangle, 13.75-13.5
- +10,000 0QN5/0QU5 94.87/95.25 put spd spd, 1.5
FOREX: Greenback Extends Weekly Decline, GBPUSD Recovers Back to 1.25
Jan-24 18:08
- In a very volatile session for G10 currency markets, it is best to run through it in chronological order. Initial moves were USD negative in APAC as headlines crossed from US President Trump around not wanting to use tariffs on China, providing the sense there is potential for negotiations between the two sides and an imminent tariff hike may not be on the cards.
- This theme has prevailed throughout the session (later bolstered by weaker than expected US PMI), cementing USD index losses in the region of 0.7%, and extending the weekly decline to around 2%.
- Elsewhere in APAC, the Bank of Japan hiked rates as widely expected, prompting some initial Yen optimism. USDJPY traded as low as 154.85 in the aftermath, however, ongoing caution from Governor Ueda over the BOJ’s easy stance eventually filtered through to a strong USDJPY recovery, briefly rising to a session high of 156.57 as the US session began.
- In Europe, stronger-than-expected flash PMI data in Germany and the UK in particular have boosted sentiment for EUR and GBP, with both taking advantage of the softer dollar backdrop to extend recovery highs to 1.0521 and 1.2502 respectively. GBPUSD has narrowed the gap substantially to the 50-day EMA, at 1.2522 and an important resistance, while the medium-term trend does remain bearish.
- Single currency strength helped EURCHF rise above 0.9500 and reach a 5-month high in the process. Importantly, the cross has breached a cluster of highs around this mark, which may signal scope for a stronger recovery towards the August 15 high at 0.9581, before a Fibonacci retracement level at 0.9655.
- While Trump remarks continue to drive short-term sentiment in FX markets, central banks come back into focus next week, with the Riskbank, BOC, Fed and ECB meetings all scheduled. US Q4 growth data is also on the calendar.
EURUSD TECHS: Clears The 50-Day EMA
Jan-24 18:00
- RES 4: 1.0696 50.0% retracement of the Sep 25 - Jan 13 bear leg
- RES 3: 1.0630 High Dec 06
- RES 2: 1.0574 38.2% retracement of the Sep 25 - Jan 13 bear leg
- RES 1: 1.0520 High Jan 24
- PRICE: 1.0516 @ 16:00 GMT Jan 24
- SUP 1: 1.0364 20-day EMA
- SUP 2: 1.0260/0178 Low Jan 15 / 13 and the bear trigger
- SUP 3: 1.0138 1.764 proj of the Sep 25 - Oct 23 - Nov 5 price swing
- SUP 4: 1.0126 2.0% 10-dma envelope
EURUSD remains in a short-term bull cycle - a correction. The pair has traded higher again Friday, and this has resulted in a clear move through resistance at the 50-day EMA, at 1.0456. The break higher strengthens bullish conditions and signals scope for a continuation near-term. Sights are on 1.0574, a Fibonacci retracement point. Initial support to watch is 1.0364, the 20-day EMA.
