Euro Holds Near 1.0700 as Traders Look Toward French Vote Sunday

  • Dollar bounces on Trump tax plan, loonie approaches 2017 low
  • French 4-way race likely to make for busy start to next week

The dollar maintained gains for the session while the euro stayed near 1.0700 ahead of the first round of the French presidential elections, with trading flows largely tied to position tweaking before an opinion poll blackout begins Friday night.

The greenback rose versus a majority of its G-10 peers, trading as high as 109.33 against the yen after U.S. President Donald Trump told the Associated Press the White House will release a tax plan next week. He said businesses and individuals will receive a "massive tax cut," but didn’t provide more details.

The dollar also advanced to a fresh five-week high against the Canadian dollar, which fell to near its 2017 low at 1.3535. Canada March inflation data missed estimates, likely reinforcing Bank of Canada concerns about weak underlying dynamics in the economy, thereby deflating any expectations for near-term rate hikes. A fifth consecutive day of declines in crude oil also weighed on the loonie.

  • Sunday’s first round of the French presidential election is seen as a close race between the four leading contenders who are in a virtual dead-heat when recent poll readings are adjusted for the margin of error. Traders and investors are trying to finesse the multitude of possible outcomes. The broad assessment is that, if polls are a reliable guide, Macron/Le Pen leads should carry into Sunday’s voting. That outcome could result in a slight positive for the EUR, while also strengthening faith in the polling process which has slipped after the Brexit vote and the U.S. presidential election
  • Other scenarios range from strong EUR positives, such as a Macron/Fillon advance to the second round, to a strong EUR negative if Melenchon/Le Pen move forward; results will be known Sunday evening and will make for a brisk Asian session at the start of the trading week
  • Heading into the weekend, the euro is lower on the day vs a majority of its G-10 peers, though it has gained about 0.8% against the dollar over the past week and is trading close to its April high.
  • JPY is seen as a potential beneficiary of haven flows if the French vote outcome elevates risks to the euro. USD/JPY had earlier dropped to session low as equities declined, USD drop was cushioned by bids under 109.00, traders in Europe said.
  • EUR/USD is trading near 1.0700 after extending its retreat from Thursday’s April peak at 1.0778. Flows are muted as positions are trimmed and as traders try to avoid significant risk over the weekend.
  • EUR stop-loss sell orders are positioned below 1.0680, while offers to sell are stacked above 1.0750, said traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. EUR/USD may face technical resistance at the 200-DMA at 1.0839, a level that could be tested on a “best case” election outcome Sunday, while support may be found at the April lows ~1.0570.
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