FX market outlook

FX market outlook

Euro jumps on French elections results, hits one-year high versus yen.

The results of the French presidential elections provided a boost for risk assets as the Emmanuel Macron victory provided more certainty for the markets, versus a Marine Le Pen win. The euro strengthened against most major counterparts and hit a six-month high against the US dollar, as Macron’s margin of victory was far greater than expected.

The euro jumped in a knee-jerk reaction when markets opened today and rose above the $1.1000 level for first time since November, although gains were limited and were capped at $1.1021 since a Macron victory was already priced in. But the margin exceeded the 60-40% anticipated. Against the yen, the euro rallied to 124.50 yen, the highest since May 2016.

Meanwhile, another risk event for the euro will be the French parliamentary elections taking place on June 11 and 18. For now, the presidential election results were positive news for the ECB and removes the uncertainty of a Le Pen win, allowing the Bank to proceed eventually with tightening monetary policy.

The safe haven yen weakened due to improved risk appetite and resulted in a jump in the dollar to 112.96 yen before easing slightly to below 112.80.

In other news, Australia released the NAB business confidence survey as well as building approvals data. Despite the upbeat business survey report, the market chose to focus on the building approvals number which were weak, and fell 13.4% in March versus minus 4.0% expected. The aussie dropped below the key $0.7400 level. The Australian currency has been under pressure due to weak prices in metals, which is a major export for Australia.

Other data released during the session showed China’s trade balance came in at a larger than expected surplus in April, although imports and exports rose less than forecast.

In commodities, oil extended gains today on hopes that oil production cuts would extend to the rest of the year and beyond, following comments from Saudi energy minister over the weekend. WTI crude oil hit a high of $46.95 a barrel in Asian session trading. Prices touched near six-month lows on Friday.

Gold prices initially fell in the Asian session open to reach $1220.91 an ounce before recovering to above $1230 an ounce.