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By xemarketanalysis November 20, 2017 2:11 pm
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    XE Market Analysis: Euro Weakens After German Coalition Talks Fail


    • British Pound is higher after news on the weekend increased financial settlement.
    • The US Dollar is recovering some ground, doubts remain on tax reform.
    • The Euro is weaker as German political risk and Draghi both weigh.
    • The Turkish Lira is down over 1%, adding to Friday's losses.


    The Euro fell sharply overnight after Angela Merkel’s efforts to form a government in Germany collapsed, leaving the Eurozone’s biggest economy in political limbo almost two months after its general election. German President, Frank-Walter Steinmeier, said parties should reconsider coalition and shouldn't go back to voters.


    The US Dollar is generally higher against its major counterparts, but movement remains slightly limited due to caution over the prospects for tax reform. The focus for the Dollar now shifts to the meeting minutes from the FED's last meeting which are due to be released on Wednesday before markets close for Thanksgiving. 


    The Pound is higher across the board today following weekend reports that Theresa May has the backing of her cabinet to substantially increase the “Brexit bill” offer, seen as key to moving negotiations onto a transition agreement and the future relationship. This week’s highlight will be the UK budget, with the Chancellor Philip Hammond sitting in a better position than he could have anticipated at the beginning of the year with respect to borrowing. We also have the second GDP estimate for the third quarter that is expected to be unchanged from the first. 


    The Euro is lower across the board after German political news and Draghi's comments that the economic expansion remains solid and broad-based, but underlying inflation pressures are still subdued and labor market slack remains significant (see highlight). 


    The Loonie is soft, down 0.2% from Friday’s close and consolidating within a relatively tight range just above Friday’s two-week low. 


    The Aussie Dollar is hovering around a 5-month low as shrinking yield premiums over the US Dollar following last week's wage data continue to weigh on the currency. The advantage of holding two-year Australian government debt over the US has all disappeared, as market expectations for the RBA to raise rates to move further out into the future. This week we have the RBA meeting minutes, and Governor Phillip Lowe’s speech, which is likely to maintain a cautious tone about inflation.


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