Euro relief rally fades quickly

8 May, 2017

Our prop desk has seen some gold positions being closed out in recent hours at a net loss, whilst a short USDJPY trade also appears to be problematic. However a series of long Euro and GBP positions dating back to the middle of last week are proving to be profitable.

We have a relatively light day ahead in terms of fresh economic data coming to the table, although the big point of interest is likely to be the dissection of the result of the French Presidential election. This is seen as something of a win for the European project as a whole, but the outcome appears to have been fully priced in – the debate as to how campaigning unfolds in the next round of voting to fill the national assembly is where attention will need to shift next.

The big event over the weekend has been the run-off vote in the French Presidential elections and favourite Emmanuel Macron won here with a comprehensive majority. The result is seen as being good for Europe and had been tipped to precipitate large inflows as it offered a degree of certainty over the future direction of the trading bloc, but the relief rally was short lived and EUR/USD is now trading back below Friday’s close. There’s still the fact that Macron has to hope for a supportive National Assembly to be elected next month, but it’s fair to say that many had expected a more positive reaction to a win of this magnitude and Euro crosses will be worth watching in the short term as there’s the scope for further gains here, too.

The Aussie dollar has seen some further volatility overnight as investors continue to digest a raft of mixed domestic data. The release of some worse than expected construction data knocked AUD/USD temporarily, but the sell-off was short lived and perhaps more interesting wasn’t exacerbated by news that Chinese trade data came in well below expectations. Beijing’s trade surplus was up and imports were well below expectations, although with the AUD looking so depleted, it’s perhaps more a case of the currency just looking too oversold to attract much further downside pressure at these levels.

Oil prices made headway through the Asian session with the outcome of the French Presidential election being seen as positive for demand in Europe, whilst there’s also growing confidence that Russia can be co-opted into the Opec lead production cuts. Its likely to be the cartel’s Vienna summit at the end of the month where we’ll seem more details here, but the monthly reports from both Opec and the EIA this week also have the potential to provide fresh direction. The market remains in a state of over supply and if the EIA takes a bullish stance over its US output projections when these are released tomorrow, then recent gains for crude could unwind quickly.

11pm GMT this evening sees the release of the British Retail Consortium sales monitor for April. This print has the ability to produce some marked reactions for the Pound, which has been finding favour of late. Arguably the biggest risk here is that even a modest short fall could initiate some profit taking against long GBP positions, given the risk that Sterling could be seen as drifting into overbought territory at these levels.ВВ 

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