A touch of euphoria, then a fall back to reality. That was the currency markets reaction to the decisive Macron victory in Paris on Sunday which took 66% of the total vote. In Asia Japanese stocks surged following the news with the Nikkei 225 up 2.3% initially.
However this morning currency markets have been far more muted with the euro at 0.845 against the pound at one point, down 0.2%. So far the euro has traded mostly sideways against key currencies despite hitting $1.10, a six-month high.
“President-elect Macron,” Goldman Sachs analyst Alain Durré in Paris said, “will need to now obtain a parliamentary majority in the forthcoming legislative elections, scheduled for 11 and 18 June, if he is to implement the programme he set out in his election manifesto.”
Euro crisis swerved
FX strategist Lars Henriksson at Handelsbanken in Stockholm also was cautious. Macron has promised much-needed reforms in the labour market he said. "Many French politicians have tried to do this before him but have failed due to a powerful public sector, labour unions and parliamentary opposition."
A Le Pen victory would have fired the starting gun for the unravelling of the euro project but with the Natonal Front making regular solid gains every five years or so the euro challenge won’t go away. Macron will need to come good on promise for lower unemployment and higher growth say analysts.
A major news hurdle for the euro is Industrial Production, out Friday at midday. It’s expected to show a small March rise, possibly up to 0.3% compared to -0.3% previously. Before that is Germany’s latest trade balance data, out Tuesday, very likely to demonstrate a continued trade surplus into March.
Political risk dialled lower
As far as EUR/USD goes, Chris Turner, head of foreign exchange strategy, ING, says his bias is now to buy EUR/$ on dips. “We think investors will look for excuses to take EUR/USD to 1.12, even though the Eurozone calendar is light this week.”