Calm equals Risk on

Post-election Calm equals Risk on

Global equities rejoiced over the French election results overnight as Macron takes a step closer to investiture with the market considering him a lock for securing the French Presidency. With the market pricing in an amiable scenario for risk assets in the second round, investors should continue to feed off this.

But there remains a dark shadow hanging over the market as traders contended with the plethora of current and anticipated Trump headlines. In what is expected to be a huge week for the  President, investor focus remains on international tensions with North Korea;  the tax reform plan slated for this Wednesday, and a possible government shutdown entering weeks’ end.

On currency markets, after yesterday’s early morning moves most G-10, markets were entangled in a middling range trade overnight while EM FX outperformed on the back of the French election relief rally.

Australian Dollar

With the French election results hitting expectations, most G-10 reactions have been pretty tame overnight. Risk sentiment responded favorably, and with Iron ore off its lows, support above 75 should hold in the near term in this environment. However as US interest rates are eventually expected to rise and with the RBA sounding oh so dovish in the latest minutes, it’s hard to envision any serious attempt at the topside .77 resistance level anytime soon.

While keeping an eye on the most recent risk headlines, local traders are turning their attention to tomorrow’s national CPI which is expected to nudge up on higher energy prices.However, the chronically tepid core reading all but guarantees a sidelined RBA for 2017.

After the RBA highlighted domestic concerns in the latest minutes, a downside miss on this data could cause the AUD to dive as the market immediately prices in the potential for an outright dovish Governor Lowe.


Traders are in the midst of hatching their medium term Euro trades, and we’ve seen real demand for EUR crosses overnight.  And while the Euro certainly has room to move higher interim, for the most part, dealers are waiting for the Fed and ECB to make the airways before re-engaging the EURUSD trade.

One could argue that with the election risk fading, the ECB will be afforded more wiggle for a more advancing policy stance but with global risk still fragile and European political risk still smouldering, the ECB will in all likeliness, reiterate their continued robust accommodation policies. 

As for the upcoming FOMC, with so much priced out of the Fed policy, the only real surprise in my view, can be a more hawkish lean than the market expects.

While the long EURUSD trade looks clear sailing, there are still the Central Banks to juggle so the no brainer EURO higher trade is far from a sure thing.

Japanese Yen
Post-French election calm is manifesting itself into a global risk rally that has the USDJPY well supported above 109 near term after it appeared to be basing below that level last week. Apparently, global equities are revelling in the election relief rally and provided risk momentum remains intact; this should continue to provide a near-term boost for USDJPY. However, I suspect the recent run of soft US economic data, lessening expectations for a Fed hike in June and  East Asian geopolitical risk will continue to keep the USDJPY bulls level headed.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes