Euro Maintains Post French Election Gains, German Ifo Beat Expectations

Euro pares back some French election triggered gains, but stays broadly higher against all other major currencies. Meanwhile, Japanese Yen is trading as the weakest as markets are on risk on mode. Markets generally welcome the results of the election and centrist Emmanuel Macron’s win in the first round is seen as a boost to the Euro. Forward Eonia bank-to-bank rates also imply a roughly 60% chance of a 10bps hike by ECB by the end of March 2018, up from just 20% chance last week. European stocks are trading broadly higher with CAC up 4.5%, DAX up 3.1% and FTSE up 1.9% at the time of writing. In other markets, Gold drops sharply to as low as 1266.0, down more than -1.3% today. WTI recovers mildly but fails to find follow through buying above 50 handle.

Centrist Emmanuel topped in the first round of election in France getting 23.75% vote. Far-right Marine Le Pen got 21.53%. Both are through to the head-to-head run-off on May 7. Higher support for Macron is seen as a sign of solid support for staying with Euro. Meanwhile, after accepting defeat conservative Francois Fillon and leftist Benoit Hamon called their supports to choose Macron over Le Pen. According to recent polls by Ifop, Ipsos and Elabe, Macron would easily beat Le Pen in a head-to-head run-off, by a wide margin. A new Harris survey also saw Macron winning the run-off by 64% to 36%. More in French Election: Macron And Le Pen Enter Final, Euro Soars Across The Board.

German Ifo beat expectaions

German Ifo business climate rose to 112.9 in April, up fro 112.4 and beat expectation of 112.5. That’s also the highest level since July 2011. Current assessment gauge rose to 121.1, up from 119.5 and beat expectation of 119.2. However, expectations gauge dropped to 105.2, down from 105.7 and missed expectation of 105.9. Ifo chief Clemens Fuest noted in the statement that "the German economy is growing strongly." He also noted separately that Macron’s first round win in the presidential election "cannot be over-estimated" and from the European perspective, "this is a very good result".

ECB meeting the next focus

Euro will now look into ECB meeting later in the week for further strength. But ECB president Mario Draghi will likely stay cautious with his messages. Draghi warned last week that risks remain tilted to the downside. And "very substantial" accommodation is still needed. Nonetheless, he sounded a bit more relieved that there are "signs" of broadening recovery "across countries and sectors", with a "somewhat brighter global recovery and increasing global trade". Chief economist Peter Praet also noted that time for stimulus exit is yet to come. Separately, governing council member Ewald Nowotny said that the policy path for 2017 is "decided". And ECB will "continuing bond purchases at a reduced level and leaving the interest-rate structures as they are." Another member Francois Villeroy de Galhau said that current policies were "fully appropriate" and recovery is "still fragile.

Trump busy with Xi, Abe, Kim and Tax

Elsewhere, it’s reported that China President Xi Jinping urged US President Donald Trump to exercise restraint over North Korea. Xi also expressed his opposition to any action that violate UN Security Council resolutions. Xi urged all parties to avoid further ratcheting up tensions. Meanwhile, Trump has talked to Japan Prime Minster Shinzo Abe. Abe then said that Trump "has indicated by his words and actions that all possible options are on the table." Meanwhile, markets will be eagerly looking forward to Trump’s announcement on tax response this Wednesday. The White House said last week that Trump will release "broad principles and priorities" of the tax overhaul.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0692; (P) 1.0715 (R1) 1.0747; More….

Intraday bias in EUR/USD remains on the upside for the moment. Rise from 1.0339 is still in progress and would extend higher towards 1.1298 resistance. But still, such rally is seen as a corrective move. Hence, we’d pay attention to topping signal above 1.0905 and below 1.1298 key resistance. On the downside, below 1.0777 minor support will turn bias to the downside for 1.0569 support first.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

Economic Indicators Update