French Election Front of Mind

20 April, 2017

Our prop desk is still running some of those long GBP positions from earlier in the week, although attempts to call an end to the Yen’s rally with short JPY trades are proving fruitless so far. The long GBP/NZD position noted yesterday was closed out for a significant profit.

Again, the day ahead looks relatively light in terms of the economic calendar but it’s going to be politics that stands to dominate the agenda. The first round of the French presidential election is set to take place this weekend and there remains a real chance that two protectionist candidates could be pushed into the run-off. This would certainly serve up a healthy slug of volatility at the start of next week, with the risk that EUR/USD could threaten a test of parity.

The weekend’s election in France certainly has the potential to bring some uncertainty to EUR crosses, although against the dollar we saw some renewed strength last night off the back of a less than stellar Beige Book release by the Fed. Even the release of some slightly worse than expected German PPI data this morning has failed to detract from the currency, with EUR/USD having traded in a very tight range for the last 36 hours. To this extent there doesn’t seem to be that much risk mitigation in play against the common currency, although it would be no surprise if we see some weakness creeping in during Friday’s trade.

A big build in US gasoline reserves served to unsettle oil prices through yesterday’s session and although we have seen a modest bounce, further volatility is probably to be expected in the short term as today is the settlement date for the May ’17 contracts. To this extent another test on the $50/barrel mark may be feasible, although with that overhanging expectation of Opec extending production cuts into the second half of the year, there’s every reason to believe that downside pressure won’t last long.

The Aussie dollar may have recovered the 0.7500 handle against the greenback, but there’s little around to provide support to these gains, which largely seem to be spinning off the back of US dollar weakness. On the basis that we have no high profile economic data due from Australia before the weekend break, and with the Aussie dollar having little safe haven appeal, it is easy to see how another leg lower could materialise in the short term.

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