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Final opinion polls ahead of the first round of the French Presidential election indicated 26% support for President Macron and 24% for Le Pen which maintained some unease that Le Pen was gaining momentum. The Euro was also undermined by concerns over a widening of peripheral yield spreads, especially with renewed fears over stagflation and potential recession in Italy. The surge in energy prices will also cause widespread economic and political stresses within the Euro area.

Overall Euro confidence remained fragile and it dipped to fresh 1-month lows below 1.0850 against the strong dollar.

Towards the European close there were reports that the ECB is crafting a tool that would be deployed if there was a jump in peripheral yields. According to sources, the central bank has not yet decided whether the instrument should be deployed pre-emptively or held in reserve.

The Euro recovered following the report with a spike to the 1.0880 area, although with little evidence of sustained support and it settled around 1.0875.

Exit polls for the first round of the French Presidential election indicated that President Macron recorded around 28% of the vote and just over 23% for National Front leader Le Pen. There was an element of relief over the Macron performance as he exceeded expectations, but also concerns that Le Pen had momentum into the run-off. The Euro spiked higher at the Asian open on immediate relief, but was unable to hold the gains with a quick retreat.

There were concerns that Macron had only a small lead and the wider dollar trend was also important as the US currency gained renewed support on yield grounds.

Given net dollar gains, the Euro traded below 1.0900 against the US currency in early Europe on Monday as the US currency secured overall gains.




US Treasuries continued to lose ground on Friday with further concerns surrounding the underlying inflation outlook. The 10-year yield settled just above the 2.70% level which helped underpin dollar confidence while there was little change on Wall Street equities. The dollar posted strong gains to a peak above 124.60 before a retreat to 124 30 amid position adjustment and limited yen short covering into the weekend.

CFTC data recorded a further increase in the net short yen position to near 104,000 contracts, the largest short position since November 2021 and close to record highs. There will be scope for aggressive short covering if there is a dip in US yields, although Fed tightening expectations are likely to dominate for now.

Comments from Fed speakers will also continue to be watched closely in the short term and Bank of Japan rhetoric could also be significant amid reservations over yen weakness. There was little impact from the Chinese inflation data, but Asian markets were significantly lower. US yields posted a further strong advance in Asia to fresh 3-year highs which underpinned the dollar and it surged to test the 125.0 level despite some warnings from the Bank of Japan against excessive yen weakness.




Sterling was unable to make headway on Friday with further reservations over the UK economic outlook and a narrowing of yield spreads compared with other major currencies. A net advance in major UK equities also failed to underpin the UK currency during the day.

Traders looked to challenge the 1.30 level against the dollar and managed to push the UK currency below this level for the first time since November 2020, although it did manage to close above this level on short covering. The Euro secured a net advance to the 0.8340 area after finding support close to the 0.8300 level.   

CFTC data recorded a further small increase in short Sterling positions to just below 42,000 contracts from just above 40,000 previously and the largest short position since the beginning of 2022. The substantial positioning will maintain the potential for short covering if there is a shift in UK sentiment, but UK confidence is liable to remain fragile in the short term which will limit Sterling support. The latest UK data was weaker than expected with the February GDP increase held to 0.1% as industrial production declined on the month. With US yields surging, Sterling was only just above 1.3000 against the dollar on Monday and net Euro gains to 0.8370.




The franc was resilient on Friday and the Euro settled just above the 1.0150 level against the Swiss currency while there was little net change against the dollar as it settled around 0.9340. Expectations of more hawkish policies from the Fed and ECB limited scope for Euro support.

The franc dipped lower after the French Presidential first-round result, although the overall impact was muted given underlying uncertainty. Yield trends are likely to have a more substantial impact and the Euro traded around 1.0180 against the franc on Monday with the dollar edging higher to 0.9255.


Technical Levels 



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