Euro Breaks Resistance

Euro starting to form a base?

The Euro has finally managed to break and hold above the significant 1.0900 level against a dollar which is itself showing signs of resilience.

Sunday evenings brief move higher for the single currency was repelled as long held corporate sell orders were triggered which saw the Euro move back within its recent range. Against Sterling the Euro managed to claw back most of its losses from last week trading as high as 0.8532 before settling back a little but maintaining is hold on 0.8500.

The fact that Emmanuel Macron continues to maintain a healthy lead over Marine le Pen in the French Presidential Election is the main driver of short term Euro strength.

However, a more significant long term driver is the fact that the market is beginning to expect a tapering of the unusual measures put in place by the ECB during the financial crisis. There is a meeting of the ECB board and expectation is growing that they will continue to taper their asset purchase scheme.

There has been encouraging data lately that shows activity is starting to return to the last major region of the global economy still suffering from the effects of 2008/9.

Composite (Manufacturing plus services) activity surveys show continued expansion and sentiment is now running at levels close to pre-crisis.

While the rest of the global economy has now surpassed pre-2008 levels the Eurozone has lagged due mainly to the devastating effect of the crisis on several members.

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Macron solidifies lead

A further source of strength for the Euro is the continuing expectation of a victory for Emmanuel Macron in the Presidential Runoff on May 7th.

Macron is centrist in every way. His appeal to centre-left, centre right, young, old, rich and poor makes him very much a “man of his times”. France has been struggling under the weight of the terrorist threat that has been growing since January 2015. It has shown its true radical left leaning credentials by seeming to be about to reject a severe lurch to the right which could see an end to populist/nationalist fervour which swept global politics over the past year.

Marine le Pen, Macron’s opponent on May 7th is trailing significantly in the polls despite her strong showing in the first ballot. France, it seems, is ready for change just not quite her type! Macron holds a 61%-39% lead as the first week of post first ballot campaigning continues.

Conservatives lead continues to grow

The decision to hold a snap election in the U.K. continues to be proved right as polls show the Government’s lead is growing. The conservatives lead by 26%, up from 24% as several factors conspire it their favour.

The apparent fall in support for the nationalist parties in Wales and Scotland has failed to ignite a socialist revival. Realism has kicked-in with the knowledge that the, main opposition, Labour Party is stuck between a “rock and a hard place”.

Led by an old fashioned socialist in the image of Michael Foot who led the party between 1980 & 1983, Jeremy Corbyn may suffer the same fate as his predecessor at the hands of a female Prime Minister. Foot was regularly savaged by Margaret Thatcher. As Theresa May finds her feet the similarity is becoming more pronounced.

Dollar climbs against JPY as risk abates

This is a market which thrives on headlines and “in your face drama”. It is prepared to accept that since there has been no major escalation the “Korean situation has gone away. It is doubtful that this is the case since the U.S. has just placed missile defence batteries close to Seoul in a show of support for it biggest ally in Asia after Japan.

Traders “short-termism” has allowed them to see a plot a path higher for the dollar against the Yen. This is a signal of “risk-on” as asset markets move higher. The dollar is some way from the peak seen in early March at 115.50 but on economic activity alone, the dollar should continue to make gains.

Tomorrow night’s BoJ meeting is sure to signal the continuation of its efforts to stimulate sufficient economic activity to ward off the spectre of deflation even if that means drawing the ire of President Trump.