The euro jumped to its highest level in three years after German negotiators reached a preliminary accord on a coalition. The report sent EURUSD surging over 100 pips, breaking above the resistance at Sept. 8 high of 1.2092 to jump as much as 0.7 percent to 1.2136, the highest since Dec. 2014.
As Germany's DPA first reported, Angela Merkel’s conservative bloc and left-of-centre rivals the Social Democrats have achieved a breakthrough in their exploratory talks on forming a new “grand coalition”, potentially bringing an end to the political deadlock that has gripped Germany since inconclusive elections in September.
The German press reported that the breakthrough came in marathon talks between Merkel, chancellor and leader of the CDU, Horst Seehofer; leader of the CDU’s Bavarian sister party; and the Social Democrats, led by Martin Schulz, on Friday morning. The three leaders will recommend to their parties that they now start official coalition talks.
Still, celebrations could be premature: any move to launch formal negotiations will first have to be endorsed by the SPD at a special party conference in Bonn on January 21. And a coalition agreement between the three parties will also be voted on by the SPD’s 400,000 members, many of whom are deeply reluctant to see the party team up with Ms Merkel’s bloc according to the FT.
Following the September 24 Bundestag elections, Germany has been paralysed, unable to form a government as both the conservatives and SPD parties fell to their worst result since 1949. Previously, Merkel previously tried to form an unprecedented three-way coalition with the liberal Free Democrats and environmental Greens, but those talks collapsed in November, sending the Euro tumbling.