EUR/USD is testing overnight lows (and gold is tumbling) after German Chancellor Angela Merkel said she would prefer to go ahead with new federal elections rather than try to form a minority government.

Seeking her fourth term, Bloomberg reports that Merkel is “skeptical” about a minority government as it may not bring about necessary stability and is open to another so-called grand coalition with the Social Democratic party, she said in an interview with ARD television.

In the absence of an agreement to secure a majority in Germany's Bundestag, “I'm certain that new elections are the better way,” she said.

And FX markets reacted…