Market Drivers May 08, 2017
Europe and Asia
CNY: Trade 38B vs. 35B
EUR: Sentix 27.4 vs. 25
North America
CAD: Housing Starts 8:15
Emmanuel Macron's overwhelming win of the French Presidency did not translate into further gains for the euro, as currency traders took the opportunity to lock in profits and push the single currency below the 1.0950 mark in early Frankfurt trade. The EUR/USD gap opened up above the key 1.1000 level on early enthusiasm over the Macron win but the move quickly faded as trader rushed in to take profits on the trades.
Although Macron's win was highly impressive as he captured the Presidency by a greater than 20% margin, the victory was well priced in by Sunday night with EUR/USD rising nearly 300 points since round one of the elections two weeks ago. In case of France the polls proved to be accurate – in fact, they were conservative – with respect to the final outcome and as a result, the markets had little reason to push EUR/USD higher.
The pair may consolidate for another day or two, but the Macron win clearly lifted an existential threat from the European Union and better yet may create some genuine economic reform in its second largest economy. As such, prospects for EZ growth have improved and EUR/USD should retain its value for the near term and may even make another run at the 1.1000 level as the week progresses.
Elsewhere the trade data out of China printed better than expected at 38B versus 36B eyed but the headline masked some clear weakness in demand. Both exports and imports declined with the later contracting by -11.9% from the period prior. The news suggests that final demand in China is clearly slowing and is likely to pose serious threats to growth going forward.
There are anecdotal reports that inventories of iron ore are at record highs at Chinese ports which does not bode well for global growth in H2 of this year. For now both kiwi and Aussie shrugged off the data trading higher on the day, but if this trend persists it could have a major impact on antipodeans as the year proceeds.
In North America today the calendar is barren with only Canadian housing data on tap. The market will get a dose of Fedspeak from both Bullard and Mester but the primary driver of trade will likely be the fixed income market as FX traders take their cue from US rates.
So far, bonds have been less than impressed with last Friday's NFP data and today the yields are drifting lower with the 30 year well below the 3% mark. If the decline in yields continues USD/JPY could easily test support at 112.00 as the day proceeds.