Germany waits for SPD vote on coalition talks.600 delegates are expected to sign off party leader Schulz’s deal with Merkel designed to lay the ground for formal coalition talks between Merkel’s CDU/CSU alliance and the Social Democrats (SPD). After one failed attempt of a coalition with liberal FDP and Green Party this is Merkel’s last chance for a stable government and another stint in office without going through yet another election that is unlikely to bring a vastly different outcome. But while party leaders back another grand coalition, Schulz has difficulties convincing the party base of his change of heart, after he initially rejected to back Merkel once again. Opposition comes in particular from the SPD’s youth organisation (Jusos) and former Juso leaders and other big party names have published a joint statement urging delegates to back the deal, which highlights that Schulz and Co are far from certain about the outcome of Sunday’s vote.
For markets a rejection and the possibility of new elections would revive concerns about political instability in the Eurozone’s largest economy and weigh on confidence in the single currency, although at the current juncture ECB officials would quite welcome a somewhat weaker EUR. The German recovery would unlikely be halted if Merkel has to call new elections, and a caretaker government would keep things nicely ticking over as it has done even since the September elections, but the political impasse will further delay necessary reforms at German and EU level.
Meanwhile, today Eurozone stock markets are rallying and the GER30 is up 0.81%,while the UK100 underperforms, but also managed to recover early losses and is up 0.04% on the day. As I wrote on Tuesday: “ Hence despite the weakness seen in January, the wider picture of GER30 remains bullish, considering we will not see any break below the 13,130.00 (200-period MA in the H4 chart). In the uptrend, the next resistance comes at the December’s resistance at 13,350.00. This positive picture could also be justified by the crossing of 50-period MA above the 200-period MA, which suggest further upcoming positive momentum. ”
Therefore, with the Index moving above all thee DAILY MAs, Daily MACD turning positively, along with the break of the last high fractal seen on January 16, a closing today above the 13400.00, suggested a retest of the 13,500.00- 13,540.00 area.