French election relief rekindles risk sentiment

Financial markets received a solid boost during early trading on Monday, after centrist, Emmanuel Macron, secured a position in the second round of the French presidential elections.

With Macron’s market-friendly, first round victory dissolving some risks associated around a potential anti-establishment shocker, the euro lurched to fresh five-month highs above 1.0930.

Although this risk-on sentiment could support the Euro in the short term, upside gains may face obstacles if uncertainty starts to mount once again ahead of the second round of voting on May 7. While expectations remain somewhat elevated over Macron becoming the next French president, the live threat of an unexpected Trump-style victory by Marine Le Pen could still expose the Euro to downside shocks.

From a technical standpoint, although the sharp appreciation on the EURUSD has made prices bullish on the daily charts, questions should be asked about the longevity of the current rally. Bulls need to secure a daily close above 1.0900 to open a path towards 1.1000. In an alternative scenario, weakness below 1.0800 could open a path towards 1.0750 and lower.

Greenback stumbles into new week

The dollar index found itself pressured below 100.00 last week, after the combination of soft economic data and fading rate hike expectations enticed sellers to attack. Although US president, Donald Trump, has announced that a big tax reform and tax reduction will be announced this Wednesday, markets have received this news with a big pinch of salt.

The skepticism over Trump’s ability to deliver is becoming quite visible and the growing threat of fiscal spending falling short of expectations may potentially punish the dollar further. From a technical standpoint, prices have commenced the trading week under renewed pressure and a break below 98.80 could open a path lower towards 98.50.

Stock markets uplifted by Macron

Global stocks were mostly higher during Monday’s trading session, as participants mulled over the market-friendly outcome of the first round of the French presidential elections. With Macron’s impressive performance and victory in the first round easing some Frexit-related concerns, stocks in Asia and Europe marched into gains.

The newly found appetite for risk should support Wall Street this afternoon. While stock markets have the ability to edge higher in the short term as a result of this relief, potential anxiety ahead of the second round of voting and ongoing Trump uncertainties still have the ability to limit gains.

Commodity spotlight – Gold

The renewed appetite for riskier assets has reduced gold’s glimmer on Monday, with the metal trading around $1270 as of writing. While the current risk-on environment has the ability to expose the yellow metal to further losses, bulls remain in control above $1260.

With uncertainty likely to heighten ahead of the second round of the French elections in the coming fortnight and Brexit developments weighing on sentiment, bulls still have a chance to send prices higher.

From a technical standpoint, the candlesticks are still trading within the daily bullish channel while the MACD points to the upside. A break back above $1280 could open a path higher towards $1280. A daily close below $1260 invalidates this daily bullish setup.