The optimism of traders regarding the outcome of the EU summit, which ended at the end of last week, was premature. First, the European press reported that not all the countries of the Alliance supported the final decision on the migration issue. Second, the summit failed to resolve the political crisis in Germany, despite Brussels' intention to renegotiate the terms of the Dublin agreement. Such disappointing trends exerted a corresponding pressure on the euro, so the EUR/USD pair started the trading week with a price pullback.
So, again, Germany. Let me briefly recall the essence of the political conflict: German Minister of the Interior Horst Seehofer, who was appointed to his position under the quota of CSU, categorically disagrees with the position of Angela Merkel in the migration issue. He advocates the prevention of "secondary migration", when migrants come to Germany who have already applied for asylum in other EU countries. The Chancellor, in turn, says that Germany should not take a stand in isolation on the migration issue, as this will only exacerbate the problem at the European level. That is why she brought this issue to the EU summit, where after a long and difficult debate, the parties nevertheless came to a common opinion, agreeing to establish new rules for the reception of migrants and to review the Dublin agreement on the distribution of refugees.
However, the outcome of the summit did not satisfy Horst Seehofer. The obstinate minister was skeptical about this decision, which is too declarative in nature. Last night, the leader of the Christian Social Union held a meeting among the leadership of the party, where he discussed his further actions. There are few options in general, only two. The minister can, by direct, order close the country's borders, thus preventing "secondary migration". Otherwise, he declared his readiness to resign as Minister of the Ministry of Internal Affairs, and the leader of the CSU.
In general, these scenarios will in any case end with the resignation of Seehofer - either at his own will or at Merkel's "will", who will be forced to dismiss him in the event of an unauthorized decision to close the borders. However, there is a third option. It should be noted here that other members of the leadership of CSU did not support his resignation and actively dissuaded from such a decision. Therefore, it is possible that the Christian-Social Union can support the CDU (Merkel) in the migration issue if it goes to a "certain compromise", for example, significantly tightening control at the border.
Therefore, to date, there is no definitive solution: Germany is still in the balance of the political crisis, since the resignation of Seehofer can destroy the construction of the government coalition. If the rest of the members of the CSU go to the minister of the Ministry of Internal Affairs, all this will lead to re-elections. And the new re-elections do not promise anything good to Merkel.
Influential public opinion institute Yougov recently published the results of one poll. It turned out that more than 40% of Germans believed that Angela Merkel should step down as Chancellor. Moreover, among the supporters of the CDU/CSU, many also called for the chancellor "to retire" - almost 30% of the respondents. It is noteworthy that more than half of the respondents believe that the current coalition will collapse before the next parliamentary elections, which are scheduled for 2021. All this suggests that in the case of re-elections, the political picture in the country can change significantly, and not in the best for Brussels side. In particular, the right-populist party "Alternative for Germany" is gaining momentum, which is not only for the country's exit from the eurozone, but for the "dissolution" of the EU as a whole. Anti-European sentiment among the Germans is still popular, so new elections can strengthen the position of Eurosceptics in the parliament.
This fundamental picture puts pressure on the European currency: the downward pullback is still limited, as the situation remains in limbo. If Seehofer reaches a compromise with Merkel, the euro will find support, but otherwise the euro/dollar pair will update the local lows.
From a technical point of view, the EUR/USD pair has not been able to overcome the main resistance level 1.1670 (the middle Bollinger Bands line, which coincides with the Kijun-sen line on the daily chart). This circumstance indicates that technically the pair still remains under considerable pressure. The support level is the price minimum of the year - 1.1508 - which coincides with the bottom line of the Bollinger Bands indicator on D1. By and large, today the fate of the pair is in the hands of German politicians. The economic calendar is practically empty today, so traders will focus their attention only on political battles in Berlin.
The material has been provided by InstaForex Company - www.instaforex.com