Synopsis:

Credit Agricole sees the EUR/USD trajectory hinging on the German elections, with 1.06 as an upside target in the case of a CDU/CSU-led mainstream coalition, while a stronger-than-expected AfD performance could push EUR/USD back to 1.03.

Key Scenarios and Market Reactions:

1️⃣ CDU/CSU-Led Coalition (Base Case – EUR Positive ✅)

• If recent opinion polls are confirmed and CDU/CSU secures a mainstream coalition, market fears over AfD’s influence will ease.
• EUR/USD could regain ground toward 1.06.

2️⃣ AfD Outperforms (Worst Case – EUR Negative ❌)

• A stronger-than-expected AfD result could complicate mainstream coalition-building, increasing political uncertainty.
• This could push EUR/USD back toward recent lows around 1.03.

3️⃣ Left-Wing Gains (EUR Positive via Fiscal Stimulus ✅)

• If left-wing parties perform better than expected, speculation over a center-left coalition could emerge.
• A more aggressive fiscal policy stance could be seen as EUR-positive, supporting EUR/USD upside.

Conclusion:

The German elections present key event risk for EUR/USD, with 1.06 as an upside target in case of a CDU/CSU-led coalition and 1.03 as downside risk if AfD outperforms. A fiscal stimulus-driven center-left coalition could also lift the euro in the medium term.