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Risk is On After French Elections: What's Next for Euro, Yen and USD?

Risk is On After French Elections: What's Next for Euro, Yen and USD?

2017-04-24 13:30:00
James Stanley, Currency Strategist
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Talking Points:

- Risk-on rallies are driving around-the-world after this weekend’s French elections. The second round of French elections will see a run-off between Emmanuel Macron and Marine Le Pen, set to take place on May 7th, 2017.

- This week’s economic calendar is back-loaded with the latter portion of the week producing quite a few potential drivers while the early portion of the week is relatively light. Highlights for later in the week are Bank of Japan and the ECB’s rate decisions, along with GDP prints out of the U.S. and U.K. on Friday.

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Another election, another surprise, and another even more surprising market reaction. Marine Le Pen is advancing to the second round of French elections, to be held on May 7th. As the news that Ms. Le Pen would be advancing made its way around-the-world to start the week, markets gapped-higher and have continued to show strength. Gold prices have driven-lower to test even deeper support, the U.S. Dollar has gapped-down to find support at the previous March low, and French equities are seeing headwinds of strength that haven’t been around since just after Mario Draghi’s ‘whatever it takes’ promise in 2012.

This week’s economic calendar is back-loaded, with quite a bit taking place on Thursday and Friday with not much else until then. We do get US Consumer Confidence on Tuesday and Aussie CPI on Wednesday along with a speech from Dr. Phillip Lowe of the RBA; but it’s the BoJ meeting on Thursday morning, the ECB meeting a little after that and a slew of GDP prints (including both the U.S. and U.K.) on Friday that will likely hold markets’ attention throughout this week.

Below, we look at three of the more pertinent price action themes for markets this week.

Will EUR/USD be able to hold gap-gains?

EUR/USD put in a significant gap to start this week’s trading that hasn’t yet filled. After closing around 1.0725 on Friday, EUR/USD gapped-up to open this week at 1.0896. Prices have worked-lower since then, but buyers have showed-up to give an element of support at the 1.0819 level, which is the 50% Fibonacci retracement of the ‘post-Election’ move in the pair. The 61.8% level of that same Fibonacci retracement helped to set the ‘swing-high’ just after this week’s open.

Risk is On After French Elections: What's Next for Euro, Yen and USD?

Chart prepared by James Stanley

Will the Dollar find Support?

Going-along with that gap-higher in EUR/USD has been a gap-lower in the U.S. Dollar. The Dollar put-in a move to the same low that was set in March; after which buyers showed-up to give us a ‘technical’ higher-low. This low is showing-up at the 61.8% retracement of the ‘post-Election’ move in DXY, taking the low set on the night of the elections up to the high sets just after the open of the New Year.

Risk is On After French Elections: What's Next for Euro, Yen and USD?

Chart prepared by James Stanley

For traders that do want to add short exposure in the Dollar, selling while at this level of support after a weekend gap could be a daunting prospect. Below, we dial-in on the hourly chart in order to locate shorter-term levels that can be used for potential resistance.

Risk is On After French Elections: What's Next for Euro, Yen and USD?

Chart prepared by James Stanley

Will Yen Weakness Come Back as a Dominant Theme?

To go along with this re-emergence of risk tolerance has been a heavy dose of Yen weakness against most major currencies. And with a Bank of Japan meeting on deck for later in the week, combined with the BoJ pledges from last week towards continued monetary support: We may be looking at another extension of Yen weakness.

Despite that gap-lower in DXY that we looked at above, the Japanese Yen has been even-weaker. USD/JPY gapped-above the critical ¥110.00-level and has remained supported since.

Risk is On After French Elections: What's Next for Euro, Yen and USD?

Chart prepared by James Stanley

In EUR/JPY, we had looked at a key level of resistance at ¥117.50 last week. This week’s gap-higher blew right through that level, and now some element of resistance is showing at the confluent level around ¥120.00.

For traders looking to add bullish exposure here, we’ve applied three different support levels on the below chart, each of which can be usable in the effort of looking for the next ‘higher-low’ in the potential continuation move in EUR/JPY.

Risk is On After French Elections: What's Next for Euro, Yen and USD?

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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