Risk on, with the EUR and the Pound on the Bounce

Markets look to have moved on from the negative sentiment through Monday’s European session, which saw European equities close out the day in negative territory alongside the weaker EUR, the result of the French election having left the markets largely uninspired despite Macron’s margin of victory according to the polls from the weekend.

Concerns over Macron being able to form a majority in parliament next month was the negative on the day with rumblings of a possible early election in Italy adding to the negative sentiment, though it’s far too early for the markets to begin considering such a prospect, with the UK General Election and the French parliamentary elections to come well ahead of any election in Italy, whether the elections will take place later this year or as scheduled, next year.

Macroeconomic data is on the lighter side for the day ahead, with economic data out of the Eurozone limited to German trade and industrial production figures released earlier this morning. Stats out of Germany were on the negative side, with Germany’s trade surplus narrowing more than forecasted in March and industrial production falling by 0.4% compared with a forecasted 0.6% increase, the stats pegging back the EUR going into the European session, with little direction for the markets through the remainder of the day other than sentiment towards ECB monetary policy and next month’s parliamentary elections in France.

We have seen the ECB look to maintain its current monetary policy stance and, while there will be expectations that Draghi and the team may begin to consider making a shift, there’s plenty of unknowns, with underlying inflation sitting well short of the ECB’s objective. There may be some guidance tomorrow with Draghi scheduled to speak, Macron’s support for the sustainability of the EUR perhaps something that the ECB had considered ahead of the 2^nd round, though it may be too soon for Draghi to take a more hawkish stance ahead of June’s elections, any hints of Macron failing to get the necessary support a negative for the French economy and the EUR.

Despite the uncertainty, the EUR has managed to stand its ground going into the European session, with the EUR down 0.02% at $1.09215 at the time of the report.

Across the Channel, economic data out of the UK today was limited to this morning’s BRC Retail Sales Monitor figures for April, which came in well ahead of forecasts, sales rising by 5.6%. The figure follows on from last week’s upbeat private sector PMI numbers, suggesting that the UK economy will rebound in the 2^nd quarter, the June General Election expected to be a formality for the Tories, if the polls are anything to go by…

From the pound’s perspective, focus will be on Thursday’s monetary policy decision and BoE inflation report, confusion abound on whether the BoE will be willing to shift from its current neural monetary policy position in light of recent stats.

As things stand, cable is up 0.09% at $1.29512 supported by retail sales figures early in the Asian session, with a lack of stats between now and Thursday to knock confidence in the UK economy.

Despite the uptick in the pound and what looks to be a recovering EUR, the Dollar Spot Index sits in positive territory at the time of the report, up 0.15% at 99.205, though with stats out of the U.S limited to March JOLTs job openings, there’s little to give the pairings direction other than an uptick in risk appetite and a recovery in commodity prices, which would support commodity currencies sitting in the red at the time of the report.

We will expect the Euro and the pound to continue to make ground through the day, sentiment towards the respective economies the positives ahead of key stats and central bank commentary later in the week.