By Areena FxChancellor Scholz called for a vote of confidence on Wednesday, and the Bundestag is set to vote later today. To remain in power, Scholz needs the support of an absolute majority of 367 votes. EUR/USD was last seen trading at 1.0513, according to OCBC FX analysts Frances Cheung and Christopher Wong.
Risks Slightly Skewed to the Upside
“If Scholz fails the vote, Germany may head toward early elections on February 23, 2025,” the analysts note. The far-right Alternative for Germany (AfD) is advocating for Germany to exit the European Union, along with leaving the Paris climate agreement, as the party prepares for potential elections. The key concern here is the explicit language calling for EU exit, which wasn’t part of their manifesto ahead of the European Parliament elections in June 2024.
Despite Moody’s recent downgrade of France’s credit rating, the euro has shown slight firmness. President Macron has appointed François Bayrou as France’s new Prime Minister. The far-left party La France Insoumise has announced plans to launch a no-confidence vote to challenge PM Bayrou, while other parties have adopted more cautious stances, imposing conditions for their support.
Ongoing political uncertainties in both France and Germany continue to weigh on the euro. However, as previously noted, these uncertainties are already priced in, and for further downside in EUR/USD, new catalysts are needed—such as a hawkish stance from the Federal Reserve.
Technical Outlook
The mild bullish momentum on the daily chart remains intact, with the RSI rising. Risks are modestly skewed to the upside. Resistance levels are at 1.0540 (21-day moving average and 23.6% Fibonacci retracement from the October high to the November low), 1.0610, and 1.0670 (38.2% Fibonacci retracement). Support levels are seen at 1.0460 and 1.0410.