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Euro, Commodity Dollars May Suffer as Yen Gains on France Election

Euro, Commodity Dollars May Suffer as Yen Gains on France Election

Ilya Spivak,

Talking Points:

  • Euro appears vulnerable amid French presidential election worries
  • Threat of eurosceptic France may weigh on market-wide risk trends
  • Aussie, NZ Dollars may fall as Yen gains if sentiment broadly sours

Worries about the nearing first round of the French presidential election may preoccupy investors as European markets return after the Easter Monday holiday. The leading four candidates are clustered near the 20 percent support mark, making it unusually difficult to divine who might move on to the second round after an initial poll in April 23. The markets are particularly leery of an outcome that pits far-right Marine Le Pen against far-left Jean-Luc Melechon, both of which are seen as potentially destabilizing.

Needless to say, the Euro is most directly vulnerable if the uncertainty of French politics spooks traders. The possibility that the EU’s second-largest economy will be choosing between two eurosceptic candidates may undermine risk appetite more broadly however, boosting perennially anti-risk Japanese Yen and applying pressure to sentiment-linked higher yielders including the Australian and New Zealand Dollars. The US Dollar may also regain some of its haven appeal, particularly against commodity bloc FX.

The Aussie underperformed in Asian trade, extending a pullback that began in Wall Street hours as Fed rate hike bets stabilized having slipped at the start of the trading week. Minutes from April’s RBA policy meeting didn’t help matters, showing the central bank is concerned about risks in the housing market and sluggish wage growth. At best, this puts rate hikes on hold for the foreseeable future. At worst, it hints the RBA may want to ease further if only it can contain buoyant property prices.

What will drive the US Dollar trend through mid-year? See our forecast to find out!

Asia Session

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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