Dollar Gains as Traders Seek Equilibrium Levels, Fresh Drivers

  • After French presidential election, traders ask, ‘What next?’
  • Resource currencies slip as yields rise, commodity prices drop

The dollar gained versus all of its G-10 peers as Treasury yields rose, with markets seeking fresh drivers and equilibrium levels after a strong U.S. employment report on Friday and as French election risk evaporated.

Flows were moderate as traders quickly locked in gains after the euro rose to its highest since November following Emmanuel Macron’s victory in the French runoff, an outcome that was signaled by daily opinion polls. The Bloomberg dollar index rose to its highest since April 12 as traders mulled next month’s Federal Reserve decision and further European elections.

  • With the French presidential race now completed, traders are left to seek fresh cues and to ponder the possibilities of the French legislative election which takes place over two weekends in June. While Macron has secured the presidency, it remains unclear how much support his newly renamed Republique en Marche party will garner in the National Assembly vs more established rivals
  • Around the same time, the U.K. will hold its general election June 8, the day the ECB will meet to decide on monetary policy. A little less than a week later, the FOMC will meet again, with analysts predicting high odds that the central bank will raise rates by 25bps after holding steady at last week’s meeting
  • EUR/USD trading near fresh low of 1.0917 after falling below the 1.0950 high of the pre-election range before Friday that was expected to offer support; bids are layered below 1.0915 down to 1.0900 as appetite remains to buy the pair on dips, traders in Europe said. Sustained break below 1.0950 may allow a decline as far as the May 4 low of 1.0875, with a breach of that level opening up the 1.0850 range base that held since the first round of the election
  • USD/JPY has rebounded above 113.00 to retest its overnight high of 113.13, reached in Asian trading as cross flows jostled the pair in both directions. The dollar earlier dropped to a session low at 112.40 as Japanese players returned following almost a week of holiday, with some taking profits and hedging trades after the yen had fallen noticeably during the Golden Week holidays, local traders said. Dollar-yen stalled at technical resistance from its 100-DMA at 113.16 while EUR/JPY fell back after touching 124.59, its highest since May 2016. USD offers are in place at 113.15 and 113.50, traders said
  • CHF fell sharply amid haven trade unwinds, dropping more than 1% vs the USD
  • USD is up ~0.5% vs a basket of currencies after rising as much as ~0.6%; the dollar is also gaining vs EMFX as a drop in some commodity prices and the rise in Treasury yields weighs on resource-sensitive currencies. USD also underpinned after the April Labor Market Conditions index rose to 3.5 vs estimates for a gain to 1. Prior month data were revised sharply higher, to 3.6, its highest reading since 2015, vs an initial reading of 0.4
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