German Elections: Will Merkel hold on to power?

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Elections in economically powerful countries like Germany have always provided an opportunity traders can take advantage of, because of the market volatility that preceded them. 

The uncertainty that surrounds an election result creates turbulence in the markets, which are exactly the conditions traders need to make bigger profits on their trades. 

If recent history has taught us anything, it is to expect the unexpected when the German Election takes place on Sunday 24th September – regardless of what exit polls and the media are reporting will happen. 

EXIT POLLS ARE LESS RELIABLE THAN BEFORE 

Opinion polls have consistently predicted that Angela Merkel will secure a fourth consecutive election victory for her Christian Democratic Union (CDU) party and their sister party the Christian Social Union (CSU). 

However, exit polls are not as reliable as they once were. Britons were expected to vote against Brexit and Hilary Clinton was considered a more likely US President than Donald Trump. 

The pulse of the voter is far more difficult to anticipate, and more susceptible to change.  

The impact of social media and other, less predictable influencers, can have a significant effect on the opinions and perceptions of voters, especially in those critical last few days before the election itself takes place. 

No outcome is certain until the last votes have been cast. 

MARKETS BECOME MORE VOLATILE AROUND ELECTIONS 

This uncertainty creates volatility in the markets, which tends to become more pronounced as the polling date approaches and even more so if the outcome is in the balance. 

That volatility is magnified when an unexpected outcome is declared, as when Britons voted in favour of Brexit. 

This is why the German election offers the potential to make some money. 

In the immediate aftermath of the Brexit vote Sterling (GBP) plunged to its lowest level since 1985, and two years later it has yet to recover. 

Another unexpected result in Germany would trigger another period of market turbulence. 

Traders are already calculating how to react depending on the outcome. This is an opportunity to make significant profits – it’s a question of picking up on the right indicators. 

 

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[Ian Billcliff]

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