MORGAN STANLEY: Here's Why Syria Could Be Bullish For The Euro

Angela merkelREUTERS/Fabrizio BenschGerman Chancellor Angela Merkel reads situation room files during a cabinet meeting at the Chancellery in Berlin, August 28, 2013.

The world is
watching Syria closelyas tensions rise in the wake of what appeared to be chemical weapons attacks.

Meanwhile in Europe, Germany is in campaign mode with parliamentary elections coming in September.

Everyone expects Chancellor Angela Merkel to see a big victory.

Morgan Stanley’s Hans Redeker argues that the conflict in Syria, the parliamentary elections in Germany, and the direction of the euro are all connected.

And all of it should have implications in the financial markets.

Here’s Redeker in his FX Morning note:

Syria and the German election. The escalation of the Syrian conflict comes at an unwelcome time for Chancellor Merkel, so far running a successful election campaign. German public opinion is against any German involvement in the conflict. In 2002, it was Chancellor Schroeder’s anti-Iraq war rhetoric winning him the election. International military conflicts at election times tend to support Germany’s political left, thus reducing Merkel’s chances of continuing the CDU/FDP coalition with the current margin. Should Merkel fail to secure a majority with her current junior coalition partner, the FDP, then we believe that EUR will develop a temporary rally. Hence, an escalation of the Syrian conflict has the potential to lift EUR.

The German elections will be held on September 22.

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