Summary:

• Stellar data from Europe helped EURUSD on Friday
• Investors await election results from Germany and New Zealand
• Yellen speech on inflation in the spotlight next week

This week was dominated by the FOMC but political issues are high on the agenda. While investors have ignored tension with North Korea they are looking forward to election results in Germany and New Zealand. However, markets are calm as solid data from the European economy makes investors optimistic. 

The PMI indices from the euro zone surged higher in September suggesting that growth outlook could be even better than the ECB assumed and despite a relatively strong currency. Manufacturing indices were at multi-year highs but perhaps even more importantly non-manufacturing sector registered a strong growth after a mini-slump over the summer. That buoyed the euro and brought back 1.20 into play again despite the Fed meeting that turned out to be much more hawkish than expected. 

We saw some nice moves on the commodity markets on Friday with Nickel prices down as much as 4.5% and soybean up 1%. Oil prices were not much changed on Friday but it’s important that oil was able to stick to last week’s gains. Our longer analysis on the oil market could be read here.   

Investors seem to be unmoved when it comes to elections in Germany – we cannot see any type of risk aversion or position squaring that was evident ahead of presidential elections in France. Polls are broadly unchanged and while the right-wing AfD could be a negative surprise for the market coalition outlook is what counts. The CDU/CSU is unlikely to have majority with it’s preferred partner FDP. Such outcome could be favoured by the markets and should it materialize we could be in for a positive reaction on Monday. Investors seem to be indifferent between the CDU/CSU/SPD Grand Coalition and the Jamaica Coalition (with FDP and Greens). Only if Merkel struggles to strike a coalition deal we could see some negative reaction. Please make sure to go through our 8 steps guide throughout the elections.

For investors elections in New Zealand could be more interesting as the ruling party may lose some seats in favour of the Labour. The NZD has recovered this week as polls for the ruling party improved but it’s not yet a done thing. Elections in New Zealand are on Saturday so investors will have Sunday to rethink their reaction.

Despite a hawkish Fed USDISX remains in a downward trend. Will Yellen end it next week? Source: xStation5 

As we’ve said traders could be a bit surprised by a temporary nature of the USD gains following quite a hawkish FOMC this week but they will have another chance to change their view on Tuesday when Yellen is going to speak on inflation and this is going to be the main point of the calendar next week.