Dollar Leads Gains Among G-10 Peers as Euro Remains Below 1.0900

  • Euro drop takes it near 200-day moving average, April gap
  • Greenback sees biggest two-day advance since January

How to Trade the Euro After the French Election

The dollar marched to a second day of gains as traders recalibrated positions while comparing the divergent monetary policy paths of the Federal Reserve, the Bank of Japan and the European Central Bank.

The greenback’s advance brought gains to more than 1 percent for the week, the biggest two-day rise since January. The dollar gained support from an increase in 10-year Treasury yields as traders ramped up bets that the Fed will hike rates in June. The euro fell to a low near 1.0865 as leveraged accounts and hedge funds were said to unwind longs after disappointing price action following the French election.

  • Broad-based dollar gains saw the greenback rise vs all of its G-10 peers, while also adding to gains vs most emerging-market FX. The Swiss franc fell amid unwinds of haven trades after the French presidential election. The Australian dollar extended its string of recent losses after a dismal report on retail sales and as the budget deficit was forecast to widen in 2017-18. The yen was undermined after BOJ Gov. Kuroda reiterated the central bank will continue strong monetary policy accommodation amid still-low inflation expectations
  • Kansas City Fed President Esther George repeated her call for FOMC to begin shrinking balance sheet reinvestments this year, saying the process could start with reducing MBS and USTs, then leaving runoff on “autopilot”; meanwhile, Boston Fed President Eric Rosengren said separately that balance-sheet normalization won’t be disruptive
  • The euro fell for a second day as traders pared back positions after Emmanuel Macron’s victory in the presidential race allayed concerns over a possible French exit from the European Union. While some speculate that recently upbeat economic data may see the ECB shift to more hawkish language at its June meeting, leading to a rise in EGB yields that may support EUR, the risk is that Fed actions resonate louder than ECB words
  • EUR/USD is trading ~1.0870, near session low of 1.0864, amid trading flows that have slowed as the dollar reaches lofty heights not envisioned before the weekend. EUR bids are layered to 1.0850 with some players expressing a desire to buy EUR on dips ahead of the possibly policy shift by ECB. Traders expect 1.0850 technical support level to hold, affirming EUR remains upward bound; risk is that a break below breaches 200-DMA at 1.0830 and sees a gap-filling move toward pre-vote levels on a 1.07 handle, with potential for stops below 1.0820 area
  • USD/JPY rose to 114.33, its highest since March 15, when it traded as high as 114.88. The pair was supported by a rise in UST yields at a time when the BOJ has pledged it will keep rates low for an extended period. Offers and stop-loss buy orders were easily filled from 113.50 to 114.00, said traders in Asia and London familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Demand has been seen from model-driven accounts as the dollar extends gains above its 100-DMA at 113.13 and above the cloud top on the Ichimoku chart
  • EUR/CHF rose to its highest since Sept. 14, extending gains for a fourth day, while USD/CHF rose to a nearly 4-week high as Swiss franc haven trades were unwound
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