The Forex market started to move now that the French elections are behind us and the Euro is in the driving seat. Macron’s win in France started a huge Euro buying wave, especially on the cross pairs.
The market participants seem to be relieved that the pro-European candidate won the race, sending the Euro higher across the board. Even the EURUSD pair is holding nicely above the 1.10 level. There’s a reason for that.
Both Retail Sales in the United States and inflation (CPI) disappointed last Friday. While the move wasn’t that aggressive initially, starting with this week the pair blasted above the all-important 1.10 level.
EURJPY and EURAUD followed suit, with EURGBP doing the same. Buyers jumped in European equities too, sending Dax at highs due to record flows pouring in. Troubles seem to be behind Eurozone.
That is, if we’re not considering the June rate hike possibility in the United States. While last week’s data doesn’t warrant such a hike, it could be that the Fed will hike for the wrong reason: feeling behind the curve might be one.
Employment is solid in the United States and ticks lower still. If any fiscal stimulus comes from the Trump’s administration, the Fed will end up being behind the curve. We all know this would be a disaster, so I wouldn’t rule out a rate hike in June only for this reason.
Moreover, the dollar is not sold against everything. It holds a bid tone against the Great Britain Pound and Australian Dollar, not to mention against the USDJPY. The fact that US equities are at record highs comes in handy for the USDJPY bulls.
Moving forward, there is no important economic data this week. This leaves room for more squeeze as low volatility in the equity markets translate in strong trends in the currency one.
The focus shifts to the June fundamental events: the ECB and the Fed have crucial meetings. While the Fed will probably hike, the ECB meeting is earlier and they might very well be hawkish.
Not that the ECB will hike or something, but the central bank might have a hawkish tone, acknowledging the big steps the European economies took lately: unemployment rate falls, inflation picks up – eventually these will be seen in the currency too.
The thing to do next is to keep an eye on the Euro crosses. I am favoring them higher, while the U.S. dollar should have a mix evolution.