FxWirePro: Dollar might rise 4.5 percent over German political crisis and hike bets

The dollar is likely to find bullish support in the recent political turmoil in Germany, the powerhouse of the Eurozone economy. After months of negotiations the tri-party coalition talks among incumbent Chancellor Angela Merkel’s Christian Democratic Union (CDU), its sister party Christian Social Union (CSU), Free Democrats (FDP), and the Green Party failed to yield any result and now over the weekend, FDP leader Christian Lindner that his party is withdrawing from the negotiations. The failure to form a government is likely to lead to another election and it also casts a shadow over the future of German Chancellor Angela Merkel, who was set to become chancellor for the fourth time and become Germany’s longest-serving chancellor.

We expect the dollar index, which is the value of the dollar against a basket of six currencies to rise from the current rate of 94 and rise by as much as 4.5 percent and test resistance around 98 area. Stop loss can be placed at 1.5 percent from the current rate.

We expect the rising rate hike bets to provide support to the dollar. According to latest calculations, the market has put forwarded 2018 rate hike from June to May. The rate market is currently pricing a hike in May 2018 with 53.8 percent probability.