Angela Merkel won as expected, but her party lost around 20% of its previous support. Most of the lost votes went to the extreme-right AfD, which came in third, a worrying sign. In addition, the most probable coalition, a three-way “Jamaica” coalition, will be harder to construct and more limited in reforming the euro-zone.
All in all, the results are disappointing for markets and these fundamentals were compounded by the technical pattern of a weekend gap.
When weekend gaps don’t close, it’s certainly telling. Traders early in Asia did not like the result of the German elections and EUR/USD opened lower. An attempt to bounce did not reach the closing level of 1.1947 seen on Friday.
When Europe opened for the week and the gap hadn’t closed, it was a sign to sell. The pair has reached a new low of 1.1880, just above support at 1.1870. Can it extend its falls?
Here is how it looks on the chart:Get the 5 most predictable currency pairs