Euro Mildly Lower After Merkel's Victory

Markets are rather steady as the week starts. The euro remains firm in tight range against the greenback after German Chancellor Merkel's victory in election. But, some weakness is seen in the crosses. The Christian Democratic bloc won 42% of the vote. The center-left challenger Social Democrats was far behind with only 26% votes. That's the biggest victory since Helmut Kohl's post-reunification victory of 1990. Merkel is set to become the fourth post war chancellor to win a third term. Merkel will now need to find a coalition partner since the Free Democrats were crashed out of the lower house. Some analysts noted the possibility of a grand coalition with the Social democrats. And, such a coalition is seen as more friendly to peripheral nations and should be euro positive.

Data from China also supports sentiments. The HSBC PMI manufacturing index rose to 51.2 in September, beating expectation of 50.9. That's also the highest reading in six months. HSBC chief China economists noted that, "the firmer footing was supported by simultaneous improvements of external and domestic demand conditions." And, the data provided"further evidence to China's ongoing growth rebound."

Looking ahead, PMI data from eurozone will be the main focus today, as well as the PMI manufacturing and services of France, Germany, and the eurozone as a whole are expected to improve mildly in September. French PMI services is expected to rise slightly to 49.4, and attention will be on whether this data would surprise and go back above 50. Elsewhere, ECB Draghi, Fed Dudley, SNB Jordan and BoE Broadbent will speak today.

Latest CFTC data showed tremendous improvements in Sterling and Aussie net positions on September 17 comparing to the prior week. The euro net long rose back sharply to 31.9k, more than double of prior week's 12.7k. The yen net shorts was relatively unchanged at -88.8k. Sterling net shorts dropped sharply to -6.3k, from -38.2k and that's the best positioning since February. The Australian dollar net shorts dropped to -27.4k, less than half of prior week's -60.0k. While the Canadian dollar net shorts dropped slightly to -18.8k, from -30.9k.