FTSE +94 points at 7208
DAX +242 points at 12290
CAC +256 points at 5315
Euro Stoxx +120 points at 3560
The outcome of the first round of the French presidential election was remarkably in line with the opinion polls. Emmanuel Macron took the lead with 24% of the votes, Marine Le Pen came the second with 22%. François Fillon, whose support remained just shy of 20%, has been a clear victim of a scandal revealing that his wife received some €900’000 from the public money in exchange to little-to-no work. The far-left candidate Jean-Luc Mélenchon obtained 19.5% of the votes, a good performance per se yet not enough to take him to the final race to the Elysée Palace.
The run-off will be held between the independent centrist Emmanuel Macron and the far-right, anti-European Marine Le Pen. Le Pen is given low probability of winning the second and the final round of the election. Her radical views on immigration, the European Union and the euro should see a solid resistance from the majority of the population. In this respect, François Fillon and Benoit Hamon already called their supporters to vote for Macron. According to the earlier polls, Le Pen would gather circa 40% of the voters by her side. In this context, Emmanuel Macron seems to be the closest to becoming the next President of France.
The euro took a deep breath on Monday, after the first round results excluded the possibility of Le Pen/Mélenchon run-off, a scenario which would have been dramatic and fundamentally detrimental for the single currency and has been broadly priced in during last week.
The CAC is expected to gap more than 250 points higher at the open in Paris. The relief rally is expected to push the FTSE and other European stock markets significantly higher as well.
The EUR/USD rallied more than two figures at the Asian open, up to a five-month high of 1.0937. The 1.10 mark is the next natural target for the euro-bulls. Support is eyed at 1.0795/1.0785 (major 38.2% retrace on April 6th to April 24th surge / 200-day moving average).
Furthermore, the euro-favourable outcome will also remove a major weight off the European Central Bank’s (ECB) shoulders, which is due to meet on Thursday. The ECB is expected to maintain the status quo at Thursday’s meeting, yet the most recent surveys hint that President Mario Draghi could review his forward guidance and hint at an earlier-than-expected policy normalization at the June meeting. This is six months prior to the previous expectation of a revision in September. Hence, more confident about the integrity and the future of the Eurozone, the ECB could come out more hawkish and encourage a further appreciation in the euro against its major peers.
The EUR/GBP tested the 0.85 mark on the upside. The positive euro momentum could encourage a further rise toward 0.8570 (50 and 100-day moving average), before 0.8600 (200-day moving average). However, the broad-based appreciation in the pound is expected to price out the strength of the single currency.
The euro’s appreciation against the pound could remain limited as the UK is preparing for a snap election on June 8th, which is expected to consolidate the UK PM Theresa May’s power at the heart of the government and could ‘soften’ the tone in the Brexit negotiations. The euro-pound trades more than 10% stronger compared to its pre-Brexit levels, suggesting that the market could easily absorb a further appreciation in the pound. As such, the 0.80 mark could be a reasonable target for the pound lovers.
The GBP/USD closed the Friday’s session on a negative note, after the March retail sales unexpectedly contracted by 1.5% month-on-month. Although the weak data revived the Bank of England (BoE) doves, the pound closed the week 2.30% firmer against the greenback. From a technical perspective, Cable remains in a solid positive trend with a minor support at 1.2717 (minor 23.6% retracement on March – April rise) and the major support at 1.2600 (major 38.2% retracement).
The market-friendly outcome of the first round of the French election set the tone for the Asian markets at the start of the week. The risk-on sentiment drove the Asian stocks higher; gold and yen were offered.
The USD/JPY traded above the 110.00 mark for the first time in two weeks. In the absence of safe-haven inflows, the USDJPY is expected to resume its ascent toward 110.60 (minor 23.6% retrace on December – April decline) before 111.65 (50-day moving average) and the critical 112.13 (major 38.2% retrace).
The Bank of Japan (BoJ) is widely expected to maintain the status quo at Thursday's monetary policy meeting. In an interview last week, the BoJ Governor Kuroda reminded that the BoJ is willing to keep the monetary conditions easy until the 2% inflation target is reached. Due on Friday, the Japanese inflation data, ex-fresh food, is expected to print a steady 0.2% year-on-year rise, comfortably far from the 2% goal. Hence, the JPY-doves could take the control of the market this week.
Nikkei (+1.37%) and Topix (+1.06%) gained more than 1% in the morning session.
In the U.S., President Trump is preparing for a ‘big announcement’ on Wednesday to unveil the ‘phenomenal’ fiscal plans. According to the latest news, the White House would outline ‘specific governing principles’ and indication on the future tax rates. The markets were boosted on Friday on the news, yet investors refrained from showing too much enthusiasm before actually hearing a sufficiently detailed framework on the upcoming tax reform. It could again be a make or break outcome for the US markets, given that Mr. Trump often failed to provide satisfactory details on his ‘massive’ plans during his first 100 days at the office.
The U.S. 10-Year yields recovered to 2.30% after shortly falling to 2.17% last week. The expectation of a Federal Reserve (Fed) interest rate hike is down to 50% for the June meeting.
Quick glance at technicals on LCG Trader:
EUR/USD intraday: bullish bias above 1.0780. Long positions below 1.0780 (pivot) with targets at 1.0900 & 1.0945 in extension. Below 1.0780, downside potential to 1.0740 & 1.0685.
GBP/USD intraday: bullish bias above 1.2765. Long positions above 1.2765 with targets at 1.2835 & 1.2860 in extension. Below 1.2765, downside potential to 1.2735, 1.2717 & 1.2675.
USD/JPY intraday: upside prevails. Long positions above 109.40 (pivot) with targets at 110.35 & 110.65 in extension. Below 109.40, downside potential to 108.95 & 108.65.