Euro Weakens as Markets Look Past Macron Victory Toward Draghi

• Euro Weakens as Markets Look Past Macron Victory Toward Draghi

The euro dropped from a six-month high against the dollar as relief over Emmanuel Macron’s victory in the French presidential election was replaced by concern the European Central Bank will maintain currency-weakening stimulus.

The shared currency fell versus most of its major peers as Macron’s expected victory over Marine Le Pen spurred investors to take profits. ECB Executive Board member Peter Praet said last week the region’s recent economic improvement isn’t yet sufficient reason to tighten policy. ECB President Mario Draghi will speak to the Dutch parliament on Wednesday.

“The euro is a sell on rallies above 1.10 against the dollar as the ECB’s senior leadership under Draghi and Praet remain cautious about the outlook for euro-zone inflation, while U.S. payrolls suggests the Fed will continue to hike rates,” says Mansoor Mohi-uddin, a Singapore-based strategist at NatWest Markets, a unit of Royal Bank of Scotland Plc.

The euro is likely to be supported on any dips, according to Peter Dragicevich, a foreign-exchange strategist at Nomura Singapore Ltd. “The mix of an improving euro-zone economy, the looming shift by the ECB toward a tapering of its asset purchases and less accommodative monetary policy stance, and the euro zone’s large current account surplus (equal to about 3.4% of GDP) are positives for the currency,” he said.

• EUR/USD falls 0.1% to 1.0990 after rising to 1.1023, highest since Nov. 9
  • Bids at 1.10 for options desks slowed the initial decline but once they were filled, the down move accelerated, according to an Asia-based FX trader not authorized to speak publicly
  • “The euro is under downward pressure as euro longs unwound their positions, especially in the crosses to reflect the result of the election,” said Naohiro Nomoto, manager of FX trading at Bank of Tokyo-Mitsubishi UFJ. “Before the election, euro longs were built against commodities currencies such as the Australian dollar and the Canadian dollar but profit-taking mood is growing as commodity prices are recovering”
• EUR/JPY little changed at 123.81 after climbing to 124.59, highest since May 2016
• USD/JPY steady at 112.95; U.S. 10-year Treasury yield rises 1bp to 2.37%
• AUD/USD weakens after March building data misses all estimates, coming in at minus 13.4% m/m, vs estimated 4% drop
  • Spot down 0.1% to 0.7416 and recovering from as low as 0.7386 after data was published