Positive market sentiment as Macron heads into the second round

Positive market sentiment as Macron heads into the second round

The euro popped higher against its peers with EURUSD hitting a 5-month high over the weekend as the first round of French elections left Macron and Le Pen going head to head in the next round in May. This could mean stronger odds of Macron beating Le Pen, thereby reducing odds of a Frexit.  It is the first time in the modern history of France, both establishment parties were eliminated in the first round. The results after the election were: 23.8% for the independent Macron and 21.5% for the NF leader- Le Pen.  A snap poll suggested that in the second round, Macron will defeat Le Pen by more than 20 percentage points. Flash manufacturing and services PMI from Germany and France turned out mixed on Friday while the German Ifo business climate index is due today.

The pound took its lead from the euro and also rallied on the results of the French elections.  However, the GBPUSD pair struggled to build further on the French election-led early momentum and continues to face some fresh supply on every attempted move towards mid-1.2800s. Apart from that, the UK currency is also riding on the bullish wave after the UK snap elections were announced. Only the Rightmove HPI and CBI industrial order expectations index are due today and strong readings could keep the currency afloat.

The US dollar was off to a weak start for the week as risk appetite returned on the outcome of the French elections.

Besides, data from the US was mostly weaker than expected on Friday as both flash manufacturing and services PMI printed weaker than expected results. For today, more speeches from dovish FOMC member Kashkhari are lined up.

The franc was also able to advance against most of its major counterparts when the French election results were announced but it was no match to pound and euro strength. There were no reports out of the Swiss economy on Friday and none are due today so the currency could keep reacting to country-specific events.

The Japanese yen gave up a lot of ground over the weekend as risk appetite was off to a strong start this week. Data from Japan came in line with expectations on Friday and none are due today so the currency is extra sensitive to market sentiment.

Gold recovered some of its early losses to 1-1/2 week low, albeit the up-move stalled near $1277.50 level and the metal has now retreated back to $1271 level.

The precious metal gapped lower on Monday and dropped to its lowest level since April 11 after centrist candidate Emmanuel Macron won the first round of French presidential election sparked a global risk-on trade and weighed heavily on traditional safe-haven assets.

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