GBP/USD has edged lower in the Monday session. In North American trade, GBP/USD is trading at 1.2940. It’s a very quiet start to the week, with no major releases out of the UK or the US. On Sunday, Emmanuel Macron easily defeated Marie Le Pen to win the French presidential election.
It was a clean sweep for PMI reports last week, as the Manufacturing, Construction and Services PMIs all beat their estimates. These releases underscore a solid British economy, despite continuing jitters over Britain’s departure from the European Union. Market concerns have increased ahead of the first phase of negotiations between Britain and the European Union. The war of words between London and Brussels continued to heat up last week. British Prime Minister Theresa May attacked the EU on Thursday, saying that politicians in Brussels were deliberately meddling in the British election, which will be held in June. May reiterated that she wants a “deep and special partnership” with the EU, while at the same time warning that no deal was preferable to a bad deal. May’s combative tone may serve her well in the election campaign, but if negotiations reach an impasse and Britain leaves the EU without a comprehensive deal in place, the toll on the British economy would be significant and the pound could drop sharply.
Emmanuel Macron has become France’s youngest president at age 39, and he rode to victory in convincing style. Macron won 64% of the popular vote, with Marie Le Pen taking 36%. Macron’s margin of victory was larger than the polls predicted, but the markets had priced in a decisive win, so the markets did no show strong movement after the vote. Although Macron certainly “won big”, it should be noted that fully one third of French voters either abstained or voted a blank ballot as a protest vote. This means that Macron was viewed by many voters as a default choice, given that his opponent was the leader of the far-right and has been accused of being racist and xenophobic. The French elections now enter a new phase, with parliamentary elections slated for mid-June. Macron’s En Marche! party is barely a year old and is unlikely to win a majority, which would mean a power-sharing setup in parliament, likely between Macron’s party and the center-right. Similar to the presidential election, the parliamentary election is full of uncertainty, and opinion polls during the election campaign will be important as fundamental releases and should be treated as market-movers.
French Election Timeline
May 7 – Emmanuel Macron wins second round of French presidential elections
May 11 – Official proclamation of President Emmanuel Macron
May 14 – [from midnight] End of Francois Hollande’s mandate
June 11 – First round of legislative elections
June 18 – Second round of legislative elections
US employment numbers were generally strong on Friday. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. The news was not as positive from wage growth remained weak at 0.3%, matching the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed will have to reconsider a third rate hike in 2017. As things stand now, two more moves is the likely scenario. The positive job numbers have cemented a rate hike in June, as the odds of hike are up to 83%, according to the CME Group.
Sunday ( May 7)
- French Presidential Election
Monday (May 8)
- 3:30 British Halifax HPI. Estimate +0.1%. Actual -0.1%
- 10:05 US Labor Market Conditions Index. Actual 3.5
- 19:01 British BRC Retail Sales Monitor
*All release times are EDT
*Key events are in bold
GBP/USD for Monday, May 8, 2017
GBP/USD May 8 at 11:20 EST
Open: 1.2966 High: 1.2986 Low: 1.2831 Close: 1.2940
- GBP/USD was flat in the Asian session. In European trade, the pair posted gains but the retracted. GBP/USD has edged lower in the North American session
- 1.2865 is providing support
- 1.2946 was tested earlier and remains a weak line
Further levels in both directions:
- Below: 1.2865, 1.2706, 1.2571 and 1.2471
- Above: 1.2946, 1.3058 and 1.3121
- Current range: 1.2865 to 1.2946
OANDA’s Open Positions Ratio
In the Monday session, GBP/USD ratio is showing short positions with a majority (64%). This is indicative of trader bias towards GBP/USD continuing to move lower.
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