French election triggers a big slide in USD; politics remain at the centre stage

Emmanuel Macron's win in the first round of French Presidential election triggered a dramatic response in global financial markets. With the final outcome of the first round increasing credibility of the polls, market now seems to have started pricing-in a definite win for the Centrist candidate Macron against his far-right politician Marine Le Pen at the final run-off on May 7. 

The stronger euro weighed heavily on the greenback, with the US Dollar Index breaking below the 99.00 handle. Further downslide, however, was limited amid renewed optimism around the US President Donald Trump's pro-growth economic policies, especially after his Friday's interview with The Associated Press where he said to unveil a tax plan that would include a 'massive tax cut' for individuals and businesses.

Against the backdrop of uncertainty over economic policies, market participants will also closely watch developments over the prospects of a looming deadline to avoid a government shutdown, which might also influence sentiment surrounding the buck.

EUR/USD

After an initial spike beyond the very important 200-day SMA, and the 1.0900 handle, to the highest level since Nov. 11, the pair pared some of its early gains and now seems have entered a bullish consolidation phase. Market also seems to have largely ignored upbeat release of German IFO business climate index, with the pair stuck in around 40-pips trading range around mid-1.0800s. 

With short-term technical indicators still far from being overstretched, the pair seems poised for additional gains in the near-term. Moreover, the pair is sustaining its move beyond the 200-day SMA important hurdle for the first time since the US Presidential election, which further reaffirms the bullish bias. 

Hence, a fresh bout of buying interest has the potential to lift the pair back above the 1.0900 handle towards testing its immediate hurdle near 1.0930 region, marking 61.8% Fibonacci retracement level of 1.1300-1.0341 downfall. A convincing strength beyond this immediate hurdle should accelerate the up-move further towards the key 1.1000 psychological mark. 

On the flip side, any weakness back below 200-day SMA support near 1.0845-40 region might continue to find some fresh buying interest at 50% Fibonacci retracement level near 1.0820 level. A follow through retracement would force the pair to fill weekly bullish gap and test 1.0775-70 horizontal support. Failure to bounce off 1.0775-70 support would negate any near-term bullish outlook and turn the pair vulnerable to initially test 38.2% Fibonacci retracement level support near the 1.0700 handle before eventually dropping to an important confluence support near 1.0635-30 region, comprising of 100-day SMA and year-to-date ascending trend-line support.

GBP/USD

The pair extended its consolidative price action below a short-term descending trend-line resistance and is now headed to the lower end of trading range support near 1.2775-70 region. In absence of any major market moving economic releases, broader market sentiment surrounding the greenback acted as a key driver of the pair’s movement on Monday. 

From a technical perspective, nothing has changed much except that the pair has repeatedly failed to clear its immediate hurdle and has struggled to build on last week’s strong gains led by the UK PM Theresa May’s announcement to call for a snap election. Hence, it would be prudent to wait for a confirmation before committing to additional near-term bullish bias. 

A decisive break through 1.2830-35 area, leading to a subsequent strength above 1.2850-60 horizontal level, would indicated a fresh leg of bullish move back towards the 1.2900 handle. Alternatively, a decisive break below 1.2775-70 immediate support might prompt a follow through selling pressure and drag the pair towards the 1.2700 support area, marking 38.2% Fibonacci retracement level of recent up-move. 

USD/JPY

Despite of strong bullish gap on Monday, and the prevalent risk-on mood, the pair remains has just managed to hold its neck above the key 110.00 psychological mark, also coinciding with 50% Fibonacci retracement level of 101.19-118.61 strong up-surge. 

With short-term technical indicators still holding in bearish territory, the pair seems more likely to come under some renewed selling pressure and hence, a follow through retracement back below the 110.00 threshold could drag the pair back towards 109.30-25 intermediate support en-route the 109.00 handle and the very important 200-day SMA support near 108.80 region. 

However, a sustained move above 110.50-60 immediate hurdle might prompt additional short-covering move initially towards 111.15-30 intermediate resistance and eventually towards 38.2% Fibonacci retracement level resistance near the 112.00 round figure mark.