The euro was on the rise through much of yesterday as markets took positions ahead of the first round of the French elections. EURUSD was up over .6% on the day against the USD, however as details emerged of a terrorist gun attack in Paris, the single currency gave back all its gains while the USD also found some demand into the end of the US session following comments from Munchen suggesting Trumps’ Tax cuts will soon be implemented and that the government will avoid shut down as the debt ceiling approaches.
Yesterday’s price action shows how important the French election is to market sentiment. As details emerged that some polls had Macron growing a lead in the race, the euro rallied, markets favored risk on trades and sentiment was well supported. European equities closed the day higher, with French bourses outperforming. Following confirmation of the attack, the euro faced selling, sentiment slipped and this morning the CAC trades down almost .8%. The rationale, quite simply, is that with so many still undecided voters, a terrorist attack just days before the election will only favour the hard line Le Pen and her aggressive far right, nationalistic agenda. US stocks closed higher as they remained supported by tax cuts hopes, while overnight that sentiment continued with the Nikkei trading to 1.5 week highs.
We had plenty of data this morning from the Eurozone in the form of PMI data from across the region and while the Eurozone figures were better than expected, the German services reading was lower, dragging its composite PMI reading below expectations. The single currency itself is slightly firmer this morning on the back of firmer data but going into the weekend, the Euro will be all about the French elections.
Expectations are for Macron and Le Pen to go through to the next round, with Macron then getting over 65% of the final vote however, should we see Le Pen take a larger lead into the second round, it may not be as big a whitewash as many are pricing. The open on Sunday evening to Monday morning will likely provide loads of volatility. EURGBP still finds major support below towards .8300 area, while any rally higher should find sellers above .8400. EURUSD finds support just above 1.0700 area for now with 1.0645 offering up some support below but major levels again ahead of 1.0500 area.