We saw risk rally as markets opened up last night following early poll indications suggesting Marcron and Le Pen would be the two candidates going through to the next round of the French elections. For many this was as expected, and as confirmation filtered through it was still worth a considerable risk rally to kick start the week.
Euro pairs rallied up to 2% in places to open the week and markets trimmed downside risk for the single currency. EURUSD jumped to open the week at 1.0908 having closed Friday trading at 1.0726, EURGBP had a similar gap higher having closed at .8374 on Friday the pair opened trading last night at .8502, considerable moves considering the outcome is what many expected and what the polls suggested. I guess it also shows how wary markets have become of the various polls. Centralist Macron, a former banker and pro EU candidate is now a big favourite to take the honours in the next round and with that we’ve seen the euro well supported to start the week, albeit we have seen some selling back from overnight euro highs.
Risk appetite rebounded and overnight Asian indices pressed to fresh highs with the Nikkei posting three weeks highs while European indices have all opened the morning higher with the French CAC up almost 4%. US futures are also pointing towards a higher open in US bourses. Donald Trump was active on twitter over the weekend once more and he’s promised to reveal his full tax plan on Wednesday, this was then scaled back by subsequent staff comments suggesting is would more be an outline of what Trump and co were looking for rather than the actual plan itself….another wish list perhaps. That being said given market have been threading water for several weeks anything that might give them a boost will be closely watched however, markets are also growing weary of Trumps’ lip service and without any firm action, any relief rally may well be limited.
The next stage of the French election should be less contentious and as such pose less of a risk to markets however, we’ll still be maintaining a close eye and should Le Pen narrow the lead, we may well see the euro give back some more of last night’s gains. German IFO business climate data released this morning was better than expected on the headline figure despite a slightly weaker “expectations” component. The rest of the data from Europe is unlikely to provide any major movement in markets so we are left to digest the detail of the French vote and look ahead to Trumps’ plans expected at Wednesday and Thursdays ECB meeting.
EURUSD ran into selling above 1.0900 and this area remains key for the bull/bear move for EURUSD. A break above 1.0985 may well see markets turn more bullish on the euro, especially should Fed rate hike expectations slip. 1.0700 area now attracts should sellers in EURUSD take control again. EURGBP rallied strongly from support just ahead of .8300 and we now find ourselves trading back higher with resistance around .8510 for now, while .8420 should attract some buyers.