The Euro found itself under renewed selling pressure during trading on Monday following reports of former Prime Minister Alain Juppe confirming that he was not ready to run in the French presidential election. Markets simply acknowledged this fresh development as potentially heightening the chances of Marine Le Pen winning the elections which consequently exposed the Euro to further downside losses on Tuesday. Sentiment remains firmly bearish towards the Euro moving forward and the growing threat of a possible "Frexit" challenging the future of the European Union should limit future gains.
Although the economic fundamentals of Europe have repeatedly displayed signs of recovery, the persistent uncertainty over the French elections continues to leave investors jittery. While inflation in the Eurozone has reached the ECB’s golden 2% target, the central bank may adopt a passive stance by keeping monetary policy unchanged on Thursday amid the ongoing political uncertainty.
From a technical standpoint, the EURUSD remains heavily pressured on the daily charts. Although the pair currently resides in a wide 150 pip range, weakness below the 1.0500 support could encourage a further selloff towards 1.0350.
Yen remains a friend
The ongoing Brexit woes, elections in Europe and Trump developments have made political risks dominant market themes for the first quarter of 2017. Uncertainty has boosted appetite for safe-haven assets with the Japanese Yen slowly becoming a trader’s best choice. Risk aversion may intensify further in the coming weeks and as such may boost Yen’s attraction ultimately uplifting its value. With the Yen likely to appreciate, markets will be observing how the Bank of Japan reacts to the increased volatility as the violent prices swings could impact business sentiment in Japan’s economy.
A strengthening Dollar from the prospects of higher US rates combined with Yen’s resurgence amid risk aversion has left the USDJPY in a tough tug of war. The USDJPY remains in a wide range on the daily charts with prices bouncing between 115.00 and 112.50. Although risk aversion could encourage bearish investors to drag the USDJPY back towards 112.50, a strong NFP on Friday should entice bulls to send the USDJPY towards 115.00.
Sterling trades below 1.2200
Sterling descended to a seven-week low below 1.2200 during Tuesday’s trading session as the Brexit anxieties haunted attraction towards the currency. Investors seem edgy ahead of a second vote to Britain’s upper house of parliament on granting Prime Minister Theresa May the power to trigger the formal Brexit negotiations. Sterling weakness could be a recurrent theme moving forward with the buying sentiment towards the currency remaining frighteningly low ahead of the Article 50 invoke.
The Sterling/Dollar has found itself under increased selling pressure on the daily charts with the breakdown below 1.2200 opening a path lower towards 1.2100.
Currency spotlight – Dollar
The rising confidence over the Federal Reserve raising US interest rates this month continues to support the Greenback. From a technical standpoint, the Dollar Index fulfils the prerequisites of a bullish trend on the daily charts as there have been consistently higher highs and higher lows. A decisive break and daily close back above 102.00 could encourage a further incline higher towards 102.50. Bulls should maintain control as long as the new higher low at 101.25 is not breached.
