German election: Exit poll suggests poor results for Merkel's coalition alliance

After ARD's exit poll, in which Angela Merkel’s conservatives are expected to get 32.5 percent of the votes vs Martin Schulz’s SPD 20 percent, one of the main takeaways is the loss of support for Merkel's party.

The AfD came third with 13.5%, FDP obtained 10.5%, Grune 9.5% and Linke 9%. There is no reason for celebrations neither at Merkel's coalition camp nor at the SPD.

As reported by Politico: "Broadcaster ARD’s exit poll shows that Angela Merkel’s CDU/CSU alliance lost 9 percentage points compared to the last election in 2013, while the SPD lost 5.7 percentage points." 

Other important points from ARD exit poll are the confirmation that the AfD is the first far-right party to gain seats in the Bundestag in 50 years. Should Merkel's coalition continue, AfD is set to be the largest opposition party parliament.

Today's exit poll by ARD also confirms that all smaller parties have done better across the board, in detriment of the aforementioned Merkel's CDU/CSU alliance. 

Alexander Gauland, leading politician of AfD, noted: ”Only the idealism [of our members and followers] … Brought us here and I want to thank you for that. And, dear friends, now that we’re obviously the third biggest power … The government has to buckle up. We will hunt them. We will hunt Ms Merkel … and we will take back our country and our people.”

Scenarios 

Clear victory by Merkel: This is more of a same kind of situation in Germany and Eurozone. Approving bailout packages will be easy; there will be more room for Eurozone financial integration. The idea of the European monetary fund will gather traction. Finance Minister Wolfgang Schaeuble wants to run fiscal surpluses every year until 2020 and has only vaguely hinted at tax cuts. So there is little scope for fiscal reflation…

Impact on EUR/USD: mildly positive, Focus would shift to the ECB.  EUR/USD could rally sharply if Merkel changes her stance following a clear vitory and talks about reflating the economy.

Tight victory by Merkel: Polls suggest Merkel will be short of a parliamentary majority in the Bundestag and will need weeks, if not months, to form a new coalition government.

A small majority for Merkel would make her vulnerable during if there’s a new crisis in the Eurozone.

Impact on EUR: A minor initial sell-off likely. Next move depends on the sound bites - if in support of reflationary policies, EUR would rally.

Schulz win: Schulz has promised to cut taxes for anyone earning less than 60,000 euros - a measure that would benefit nine out of 10 German workers - and to reduce social security contributions for those earning up to 15,000 euros a year. Schulz also wants to spend 30 billion euros more on public investment by 2021. He wants to raise taxes for top earners.

Impact on EUR: An Intraday sell-off could be followed by a sharp rebound and rally to 1.24 handle in the subsequent days, especially if the new Chancellor talks about delivering tax cuts and public spending.