Fundamental Analysis

Monday Session To See German Election Overhang

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German Chancellor Angela Merkel secured her fourth term in office on Sunday, although the victory was overshadowed by an upsurge in alt-right populism. The ‘Alternative for Germany’ or AfD, secured roughly 13% of the popular vote in the federal election to become the first overtly nationalist party to enter the Bundestag in 60 years.

On the economic calendar, investors can expect a slew of monetary policy news at the start of the week. Bank of Japan (BOJ) Governor Haruhiko Kuroda is scheduled to deliver a speech around 5:35 GMT. Later in the day, European Central Bank (ECB) President Mario Draghi will also deliver remarks.

On the US policy circuit are regional Fed Bank presidents William Dudley (New York), Charles Evans (Chicago) and Neel Kashkari (Minneapolis). Kashkari is a voting member of this year’s Federal Open Market Committee (FOMC).

In data news, the CESifo Group will release its German business sentiment index at 08:00 GMT.

Shifting gears to North America, the Chicago Fed will release its national activity index at 12:30 GMT. The monthly indicator is used to gauge the performance of the overall economy.

Later in the session, the Dallas Fed will unveil its monthly manufacturing business index for September.

Earlier in the day, the Nikkei manufacturing PMI showed a slight uptick in Japan’s factory sector this month. The preliminary index edged up 0.4 points to 52.6. Analysts in a median estimate called for a reading of 53.4. Any PMI above 50 signals expansion in economic activity, whereas a reading below that level denotes contraction.

EUR/USD

All was quiet on the euro front on Monday, as investors digested the German election result. The EUR/USD was down 0.2% at 1.1929 in Asian trade, as the market continued to pull away from the all-important 1.2000 level. The pair is directionless around the 20-day moving average, but remains far above the 100-day and 200-day simple moving averages. This suggests that further upside may be in store.

GBP/USD

Pound sterling rose in overnight trade, reaching a session high of 1.3530 US. Cable has been in a bullish uptrend since the Bank of England (BOE) sent its strongest signal yet that rates could rise later this year. The GBP/USD has gained more than 700 pips over the past month. However, near-term upside remains capped below 1.3600. On the opposite side of the ledger, immediate resistance is located at 1.3450.

USD/JPY

The USD/JPY broke higher in early-week trade to retake the 112.00 handle. The pair touched a session high of 112.46 before paring gains later in the session. The dollar-yen cross has been supported by improved risk sentiment in the financial markets. As a result, the yen’s haven appeal has waned considerably.

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