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From the Floor: EURUSD unable to build momentum —#SaxoStrats

  • Euro post-French election rally held beneath 1.09
  • Focus could shift to Trump trade again this week -- Hardy
  • Global indices continue to spiral higher on likely Macron win
  • Economy growing around trend in US, ahead in Europe -- Garnry
  • Le Pen victory likely to get priced out, helping equities higher -- Garnry
  • Oil slide needs bullish EIA report to avoid further weakness -- Hansen
  • Gold suffers after risk-on move with support at $1,254/oz -- Hansen

 By Martin O'Rourke

 Momentum stalled

The post-French election euro rally may have been impressive, but the failure to take EURUSD beyond 1.09 suggests there is a limit to how far this can go, even as risk-on gains a powerful foothold through the equities space.

"There wasn't really a follow-through on EURUSD so it looks a bit like a one-off adjustment," says Saxo Bank's head of forex strategy John J Hardy. "We've got somewhat conflicting inputs there, with rates coming back higher and European rates are not outperforming US rates so we're not getting EURUSD push there."

"But we are getting some from peripheral spreads being crushed lower."

EURUSD was at 1.0882 at 0655 GMT.

Hardy anticipates some renewed momentum around the "Trump trade" as US president Donald Trump seeks to end his first 100 days in his office (April 29) with a flourish in character with the showman-like qualities of the White House incumbent.

"Trump's first 100 days are winding down, and he would like to notch a policy accomplishment or two which is why he has hit Canada with tariffs on lumber imports," says Saxo's forex chief. "It's the protectionist risk theme revisited and we might also see Trump push on his tax agenda with a cut in corporate tax to 15% from 35%."

"This becomes about whether the market believes that there is actually going to be a revival in the Trump trade themes after such a long delay." (See also Hardy's latest FX Update here.)

USDCAD has taken stock after news of the tax on Canada's lumber, pushing the pair towards the 1.36 handle as part of a journey that could eventually see the pair head higher before potential resistance at 1.3840.

CAD on the back foot as Trump sends out a log-laden message
Source: SaxoTraderGO

Equities flying

Euro momentum may have stalled, but it was full-steam ahead for global indices as the French election result Sunday looks almost certain to propel centrist Emmanuel Macron to the presidency on May 7.

The Cac40 flew to a 5% open rise amid the euphoria and, although it gave up some of those gains, it provided the template for the major global indices, helping Germany's Dax to a record high, sparking the FTSE100 into the green despite the recent relative strength of sterling, lifting Japan's Nikkei and helping the three benchmark US indices -- S&P500, Dow and Nasdaq -- through key areas.

"The S&P500 is back above the 2,350 area and has crossed that declining trendline we have been focused on for some time," says Saxo Bank's head of equities strategy Peter Garnry. "It was a major breakout on the Cac40, and that helped the Dax to new highs and some follow-through in the FTSE100."

"We have been expecting Europe in the second quarter to outperform the US, and that is now what is really taking place," he says. "The move has been led by financials as markets price out a Le Pen victory and, at the same time, there is an expectation that the ECB might start some rate normalisation."

The European Central Bank holds a policy meeting in Frankfurt on Thursday.

Dax made hay in the wake of Macron's victory
Source: Bloomberg

Over the shoulder

Oil markets were derailed last week by an unexpected build in gasoline stocks, and bulls are focused on tomorrow's EIA report as another weak print could see further weakness among the key benchmarks.

"The oil market is really in need of a bullish input from the EIA report Wednesday," says Saxo Bank's head of commodities strategy Ole Hansen. "Gasoline sent the market into a tailspin and not even the pick-up in risk-on elsewhere has had an impact."

"Oil looks like it could be settling into a range."

Gold meanwhile is feeling the heat from the renewal in risk-on pushing the precious metal back to $1,272/oz at 0655 GMT and ever further away from the tantalising $1,292/oz price that marks the downtrend from 2011, says Hansen.

"XAUEUR was especially hard hit after all the euro strength Monday, but the key focus remains geopolitical and North Korea has not gone away."

Hansen expects XAUUSD to stabilise in front of support at $1,264-54/oz, but is not ruling out further downside.

"We could see a deeper correction before we get another challenge to the $1,292/oz level," he says.

 I'm coming for you Syria.....North Korea...I mean Canada. Photo: WikiCommonsMedia

Martin O'Rourke is managing editor at Saxo Bank


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