EUR/USD Profit Taking After Anticipated Macron Victory, Solid Support on Dips
Frankfurt (May 8) There will still be tough near-term Euro resistance above 1.1000, but with strong support likely on any significant corrective retreats given improved confidence in the outlook.
The French Presidential election result confirmed that centrist Macron had beaten National Front leader Le Pen with close to 66% of the vote and this was stronger than the 62-63% recorded in final opinion polls.
The Euro strengthened at the Asian open with EUR/USD moving above the 1.1000 level for the first time in over 6 months. There were also Euro gains on the crosses with EUR/JPY at the highest level for close to 12 months as it moved above 134.00.
The Euro was unable to sustain the advance and dipped back below the 1.1000 level as liquidity improved, although the overall tone remained firm.
Markets had already moved to anticipate a Macron victory given that opinion polls last week had consistently pointed to a comfortable victory and this lessened the potential for further buying.
There will be important uncertainties surrounding the French parliamentary elections with Macron facing a tough task in winning a substantial number parliamentary seats given that his En Marche party was only formed in 2016.
There will be uncertainty surrounding his choice of Prime Minister and whether Macron can secure an election pact with one of the major two parties ahead of the parliamentary vote.
Nevertheless, there will still be an important sense of relief over the election outcome, especially as it eliminates the near-term risks of internal and wider Euro-zone destabilisation. There will also be increased confidence that German Chancellor Merkel can secure re-election in September, especially after a strong victory in Sunday’s Schleswig-Holstein state election.
As far as economic policy is concerned, the ECB stance will be very important in the short term. There will be relief within the central bank surrounding the French outcome with a reduced risk of capital outflows and renewed turbulence within the Euro area. The net downside risks to the economy have also diminished.
In this environment, there is the potential for greater willingness to move towards a slightly less accommodative policy at forthcoming policy meetings with a focus on the June 8th policy meeting.
The German factory orders data was slightly stronger than expected with a 1.0% gain for March while the Eurozone Sentix investor confidence index strengthened to 27.4 for May from 23.9 previously and the strongest level for close to 10 years.
Overall confidence in the Eurozone outlook will remain firm in the short term with expectations of capital inflows which will also support the Euro with a reduced likelihood that inflows will be hedged against currency risk.
Source: EconomicCalendar
