EUR/JPY retakes 134.00 as markets digest Merkel win

The EUR opened on a slightly weak note this Monday morning on the back of the expected German election and Merkel victory.

The "sell the fact" trade saw EUR/JPY open lower at 133.45. Merkel's victory is widely being called as "hollow". Bloomberg Politicsl says, "Her party unexpectedly recorded its weakest result since 1949, and was helped to victory by her main challenger, Martin Schulz’s Social Democrats, performing even worse".

Mrs Merkel must now find coalition partners to form a government. The AfD, which channeled the slow reemergence of long-suppressed nationalism, which is set to enter parliament for the first time, is unlikely to be invited by Merkel.

Currently, the EUR/JPY pair is trading around 134.20. The uptick in USD/JPY is partly responsible for the recovery in EUR/JPY pair.

The formation of the new government looks extremely tricky. Merkel's coalition partners - FDP are against euro integration. This, coupled with Afd's entry into parliament could cap gains in the EUR.

EUR/JPY Technical Levels

A break above 134.28 [61.8% Fib R of 2014 high-2016 low] would open up upside towards 135.73 [Aug 2014 low] and 136.00 [zero levels]. On the downside, breach of support at 133.25 [support on the 4-hour chart] could yield a pull back to 132.92 [4-hour 50-MA] and 132.00 [zero levels].