FTSE +3 points at 7303
DAX +16 points at 12710
CAC +22 points at 5405
Euro Stoxx +8 points at 3650
The early enthusiasm on Monday left its place to a flat-to-negative market. Emmanuel Macron’s victory encountered a correction sell-off in the euro and the European stock markets.
The CAC closed 0.91% softer, while the DAX retreated 0.18% following Macron’s victory. Both indices are set for a slightly positive open.
Now, all eyes are on La République en Marche, Macron’s rebranded party, which is due to announce 577 candidates for June’s parliamentary elections on Thursday; some of them from the Republican Party, some from the Socialist party. Although the political uncertainties in France remain on the headlines, the worries regarding France’s place at the heart of the EU and the Eurozone are no longer a barrier for the macro traders.
The EUR/USD retreated to 1.0915 (minor 23.6% retracement on April – May rise), although the French-German 10-year bond yield spread hit the lowest since December in the aftermath of Macron’s victory. The key support to the present positive trend stands at 1.0849 (major 38.2% retrace)
Released in the morning, the German industrial production contracted by 0.7% month-on-month in March due to weak energy and investment demand. German current account and trade balance improved more than expected on the same month. From a political perspective, news are encouraging for the actual Chancellor Angela Merkel, who ensured a solid victory on Sunday’s regional elections, suggesting that she is on the right track for the national elections due in September.
The volatility in the US stocks continues diving. The VIX index closed at its lowest level since 1993, as the S&P 500 traded at a new record high of $2,401.36. Investors continue buying into the tax reforms, despite the political shenanigans on Mike Flynn and news that he may have been 'blackmailed by the Russians'.
Nikkei (-0.13%) and TOPIX (-0.23%) couldn’t find buyers in Tokyo, despite a softer yen. Shanghai Composite (-0.50%) and ASX 200 (-0.49%) remained on the back foot, even with an improved sentiment in the energy sector (+1.23%). Commodities remained offered.
FTSE 100 hints at a flat open, as investors hesitate on whether the 1.30 barrier before the GBP/USD could remain intact for another day, and whether the oil markets could extend recovery beyond the $47 a barrel.
The Bank of England (BoE) hawks seem to refrain cable from taking over the 1.30 resistance before Thursday’s policy meeting and Quarterly Inflation Report (QIR).
WTI consolidated gains below the $47 level. Buyers are tempted to take a chance on an eventual positive move, provided that OPEC hints at the extension of production cuts at May 25th meeting. Meanwhile, many investors are quite reluctant to take the bet, indicating that extending cuts may not be enough per se, OPEC and its allies may need to envisage deeper cuts.
The WTI could extend the recovery to $48.78 (major 38.2% retrace on April – May debasement), if surpassed, will hint at short-term bullish reversal and pave the way for a further rise toward $50. We are prepared for larger swings as the speculators are in charge of the market.
The USD/JPY extended gains to 113.38. As such, the pair recovered half of losses recorded on December – April decline. Lower safe haven demand and improved US yields are supportive of a further rise toward the 115.00 mark. Intermediate resistance is eyed at 114.60 (major 61.5% retrace on December – April decline).
In Australia, the retail sales contracted unexpectedly by 0.1% on month to March. Disappointing data further weighed on the AUD/USD. The pair extended losses to 0.7352. The pullback toward the 0.7300/0.7290 is underway. Offers are eyed at 0.7455 and 0.7510 (minor 23.6% retrace and major 38.2% retrace on March – May decline).
Quick glance at technicals on LCG Trader:
USD/JPY intraday: Long positions above 112.85 (pivot) with targets at 113.45 and 113.65 in extension. Below 112.85, downside potential to 112.65 and 112.45.
EUR/JPY intraday: Long positions above 123.40 (pivot) with targets at 124.05 and 124.35 in extension. Below 123.40, downside potential to 122.95 and 122.55.
Copper intraday: short positions below 2.5120 (pivot) with targets at 2.4650 and 2.4420 in extension. Above 2.5120, upside potential to 2.5250 and 2.5470.