Forex Market Review (European Session) – French election outcome dominates markets; risk-on appetite resumes

Forex Market Review (European Session) – French election outcome dominates markets; risk-on appetite resumes

There were some economic releases hitting the markets during today’s European session trading, including the German Ifo survey measuring business morale in Europe’s largest economy. But the outcome of the first round of French presidential elections was undoubtedly the factor underlying most major movements in financial markets today.

The pro-EU Emmanuel Macron coming in first, ahead of anti-EU rival Marine Le Pen, in the first round of French presidential elections helped boost the euro in today’s trading. Specifically, the single currency opened the day with a gap higher relative to where it closed on Friday versus major other currencies including the dollar, sterling and the yen. Euro / dollar started the day at the five-and-a-half-month high of 1.0919. Within minutes of the day’s open, euro / pound reached 0.8505 which marked a one-week high, while euro / yen started the day at 120.75, a one-month high. The euro later gave up part of those gains, but was still comfortably above Friday’s close relative to all three currencies. The final round of French presidential elections is set to take place on May 7. Based on opinion polls, it is widely expected that Macron will prevail and it is highly likely that currency markets have already priced in this outcome – at least to a significant extent.

Main European stock indices are also performing strongly on the day, starting the day with a gap higher as well. Indicatively, during late European session trading, Germany’s DAX 30 was up 3.3%, France’s CAC 40 up 4.2% and Spain’s IBEX 35 up 3.6%.

The dollar index opened at a more than five-month low, predominantly as a result of dollar weakness relative to the euro. It was last up from that low and marginally above the 99 level. Dollar / yen benefited from the risk-on sentiment as a result of Macron’s first round victory to also open at a gap higher. It was last marginally above the 110 level, exceeding Friday’s close but below the intra-day high of 110.59. The greenback could experience additional volatility on Wednesday, the day US President Donald Trump said he would announce the broad outline of his proposed tax reforms.

German business sentiment, as depicted by the Ifo Business Climate survey, rose in April relative to the previous month. Specifically, the index climbed to 112.9, exceeding forecasts of 112.5 and March’s 112.4, which was the result of an upward revision. The reading constituted a near six-year high for the index, indicating the German economy’s resilience at a time of growing fears of trade protectionism alongside other threats hitting the global economy. The Current Conditions index was also above projections and March’s figure, while the Expectations index came in below analysts’ forecasts and March’s respective number. The fall was attributed to the industrial sector though and was not perceived as threatening to the rest of the economy. Euro / dollar rose upon release of the data but the pair’s gains were short-lived.

Out of the UK, the Confederation of British Industry’s (CBI) monthly balance of manufacturing output fell to +4 in April from +8 in March, showing that factories are cutting down on investments. Expectations were for a +5 reading. Pound / dollar fell after the release of the data, though it recovered most of those losses soon after. The pair was last down on the day, not far above the day’s low of 1.2771.

Taking a look at gold, the precious metal, similar to the yen, fell victim to the unwinding of safe-haven trades. It was last trading at $1272.42 an ounce – down 0.9% on the day, while it also recorded a near two-week low of $1265.66 earlier in the day.

Later on, markets will be paying attention to speeches by dovish-perceived FOMC voting member Neel Kashkari.

Source: Trade Forex with XM

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