Fundamental Analysis

Euro In Tight Range Ahead Of French Election


EUR/USD is showing little movement in the Friday session. Currently, the pair is trading just above the 1.07 line. On the release front, Eurozone and German Manufacturing PMIs both beat their estimates, and the Eurozone current account surplus was much higher than expected. In the US, today's key event is Existing Home Sales, which is expected to climb to 5.61 million. On Saturday, US Treasury Secretary Robert Mnuchin will speak at the International Monetary Fund meeting in Washington. On Sunday, France goes to the polls for the first round of the presidential election.

Sunday is Election Day across France, which holds the first round of the presidential election. The election campaign has been divisive and charged, so perhaps it's fitting that the four front-runners (in a crowded field of 11) are all within a few percentage points of one another. Given the tightness of the race, final opinion polls have become market-movers. An opinion poll on Thursday showed centrist Emmanuel Macron with 25% of the vote, just ahead of far-right candidate Marie Le Pen with 22%. Le Pen's platform includes sharp curbs on immigration and a referendum on France's membership in the European Union. If Le Pen does better than predicted, investor sentiment could sour and send the euro sharply lower. A shooting in Paris on Thursday which killed a policeman and a tourist have stretched taught nerves even further, as security and the terrorism threat remain one of the key issues in the campaign. The markets are expecting more volatility ahead of and following the election, and French banks will be staffed throughout Sunday night in order to respond quickly to developments in the currency markets after the election results.

OANDA's Senior Currency Analyst Alfonso Esparza provides further analysis of the election in French Presidential Election Outcome Raising Market Anxiety.

PMI reports for March from the eurozone, France and Germany all pointed to expansion in the services and manufacturing sectors, underscoring an improving eurozone economy. Manufacturing data was particularly encouraging, as Eurozone and German Manufacturing PMIs came in at 56.8 and 56.2 respectively, as both readings beat their estimates. The strong PMI numbers have helped support the euro on Friday, as cautious investors keep a close eye on Sunday's vote in France. There was more positive news as the eurozone's current account surplus jumped to EUR 37.9 billion, well above the estimate of EUR 26.3 billion.

The Federal Reserve has broadly hinted that it will gradually raise rates in 2017, but it's unclear how many times Janet Yellen will press the rate trigger. Most analysts are expecting two more moves this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March are likely to make the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. Will the Fed raise rates in June? The odds of a June move are showing a surprising amount of volatility, and the latest CME Group reading shows the likelihood a 1/4 point hike have jumped to 58%, up from 45% earlier this week.

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