FX market outlook

FX market outlook

Euro holds above $1.07; dollar supported by Mnuchin comments on tax reform.

Risk aversion dominated the markets, following news of the terrorist attack in Paris and risk ahead of the French elections, giving safe havens a boost.

Investors were already in countdown mode to Sunday’s first round vote in France, which kept the euro subdued. A recent poll showed Macron at 24%, Le Pen at 21.5%, Fillon at 20% and Melenchon at 19.5%, making it a very tight race.

Limited action is expected for the euro ahead of the vote although flash PMI data out of the Eurozone today could have some impact on the currency.

The euro failed to sustain gains made yesterday that took it to a three-week high of $1.0777 against the dollar and it traded a tight range in Asia in the lower $1.0700 area. Better-than-expected French PMI data released early in the European session gave the euro a boost to $1.0731.

Comments by US Treasury Secretary Steven Mnuchin yesterday helped lift the dollar index. Mnuchin was speaking at an event in Washington DC and mentioned that he expects the US tax reform bill to pass by the end of the year.

The dollar index, which gauges the greenback against six major counterparts, opened slightly higher today from yesterday’s close but remains below the key 100-point level.

The dollar held onto Thursday’s gains against the yen to trade a range around 109.30 yen.  Upbeat Japanese data helped boost the yen early in the Asian session. Japan’s flash manufacturing PMI came in at 52.8 in April, which is better than March’s 52.4 reading.

Sterling was little changed against the dollar, still holding onto gains made after Tuesday’s rally on the announcement of snap elections in the UK. Cable traded around $1.2807 in Asia. UK retail sales due later could impact the pound.

In commodities, WTI oil traded around $50.70 a barrel after dipping on Thursday. Brent crude hovered around the $53 mark. Both benchmarks are on track to end the week with losses.

Gold traded around the key $1280 an ounce level. The precious metal is down on the week after slipping from a five-month high of $1295.38.

For the rest of the day, investors will watch UK retail sales data for March and a Markit PMI report out of the US. Canadian inflation data and US existing home sales data will also be released.