Merkel’s CDU and Germany’s SPD coalition talks are set to begin Tuesday - Scotiabank

Analysts at Scotiabank explained that the EUR is up from Friday’s close, range bound and consolidating just below last Tuesday’s multi-year high. 

Key Quotes:

"Germany’s SPD has voted to proceed with coalition negotiations with Merkel’s CDU and talks are set to begin Tuesday. ECB risk is elevated heading into Thursday’s meeting as market participants assess policymakers’ recent comments pushing back on expectations for near-term adjustments to guidance."

"ECB VP Constancio, France’s Villeroy, and Austria’s Nowotny have also expressed concerns about the exchange rate. Yield spreads remain bearish and extended, with the Germany-U.S. 2Y testing record lows beyond –265bpts."

"Short-term risk reversals are drifting lower, and Friday’s CFTC data showed a sizeable $3.1bn build in EUR gross shorts in the week ended January 16. Gross longs also climbed $2.9bn to a fresh record high, dragging the net long down modestly from the prior week’s $21.6bn record."