8th May 2017, GTC Advisors – French Election Results Don't Benefit the Euro

GENEVA - May 8, 2017 - PRLog -- The euro dropped from a six-month high against the dollar as relief over Emmanuel Macron's victory in the French presidential election was replaced by concern the European Central Bank will maintain currency-weakening stimulus.

GTC Advisors has been keeping a close eye on the euro since the results of the French General Election, anticipating a negative move. The shared currency fell versus most of its major peers as Macron's expected victory over Marine Le Pen spurred investors to take profits. ECB Executive Board member Peter Praet said last week the region's recent economic improvement isn't yet sufficient reason to tighten policy. ECB President Mario Draghi will speak to the Dutch parliament on Wednesday.

The euro is a sell on rallies above 1.10 against the dollar as the ECB's senior leadership under Draghi and Praet remain cautious about the outlook for euro-zone inflation, while U.S. payrolls suggests the Fed will continue to hike rates.

Whilst the currency may only see a slight fluctuation, we expect it to remain negative for the next few weeks as we await more data from the Eurozone and the expected pick up in the economy.

We expect the ECB to continue its current line of stimulus for the foreseeable future due to the lack of commitment by the Central Bank to make any previous changes despite positive data pointing to a possible recovery from the region.

Key Currency Data:

EUR/USD falls 0.1% to 1.0990 after rising to 1.1023, highest since Nov. 9

Bids at 1.10 for options desks slowed the initial decline but once they were filled, the down move accelerated.

The euro is under downward pressure as euro longs unwound their positions, especially in the crosses to reflect the result of the election, before the election, euro longs were built against commodities currencies such as the Australian dollar and the Canadian dollar but profit-taking mood is growing as commodity prices are recovering

EUR/JPY little changed at 123.81 after climbing to 124.59, highest since May 2016

USD/JPY steady at 112.95; U.S. 10-year Treasury yield rises 1bp to 2.37%

AUD/USD weakens after March building data misses all estimates, coming in at minus 13.4% m/m, vs estimated 4% drop

Spot down 0.1% to 0.7416 and recovering from as low as 0.7386

All this points to the US markets continuing to be an alternative for European and local Asian indices, with the S&P 500 seeing gains of 7.86% YTD and the NASDAQ almost doubling the benchmark index holding gains of 13.33% YTD.

The probability of a rally in Oil prices will significantly help the US markets, bolstering the gains already seen in 2017.

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