The victory of Angela Merkel has been seen in various ways. For us, the German people, realizing that their fate was somewhat better as their neighbors, choose continuity. Angela Merkel has caught the right persona for her time: no major ideology, no flamboyance, no surprises in management. This is quite the opposite of the past major feminine leaders since WWII: Golda Meir, Indira Gandi and Margaret Thatcher. Nevertheless, she is the leading and most powerful figure in EU politics today.
The fact that the FDP lost its seats in the Bundestag and its voice in government is important as it opens the door to a more integrated Europe.
This coincides with the flash Euro PMI from Markit, which shows that the Eurozone recovery is ‘gathering pace’ – with both services sector and manufacturing firms reporting a rise in activity, driven by Germany, where industrial growth is at its fastest rate since the start of the year.
We got stopped out of our short EURUSD at the old limit of 1.3410 , for a loss of 50 bp on a half a position. Given the 275 bp, we made this summer, this is a small set-back, but it could have been avoided. The reason are:
- We did not follow one of our basic rules, which is to be out of the market before any major announcement.
- We got caught in the overwhelming consensus and started to speculate on the political aspects, rather than stay with economic fundamentals.
We also forgot about history. The biggest fear of Ben Bernanke has been disinflation and we have talked all summer about the fact that monetary aggregates in the US and EU continued to be anemic.
The result is that various pundits now call for 1.37 on the EUR. Basically, there is a put on the stock market, a put on the bond market, so risk should be on. This has translated, in the last few years, into EUR buying. We think this time around that it will be mainly translated in re-rating in emerging markets, which should see a good run in all its asset classes in Q4.
The high on Feb1, was 1.3714, were the move basically lost all its strength. We can only see that since Thursday were EUR broke above 1.35, that there has been little follow-trough. We are trading close to the weekly pivot of 1.3478. . Our hunch is that we should test the first weekly support at 1.3380 area. We are going to wait to see further evidence before talking any strong view.
Pivot on EURUSD December Futures
PP 1.2974, R1 1.3631, R2 1.3727, R3 1.3976
S1 1.3382, S2 1.3229, S3 1.2980