Tim Riddell, Research Analyst at Societe Generale, explains that the EUR relief rebound and narrowing of OAT-bund spreads on the Macron-Le Pen result from the 1st French ballot underlines the reduced existential risk for both EUR and EU that was being priced (excessively) into EU markets.
“They think it’s all over.” Markets are comfortable with a Macron victory, but how fragmented the Assembly will be after the June vote is the next political thorny issue for EU. In the interim, markets expect change in guidance from ECB, but low inflation and credit data suggest no change in policy into 2H’17.”
“The EU Brexit summit this weekend could now hamper EUR. A tough stance for Brexit negotiations is likely to emerge.”
“Markets will look for GDP to reflect PMI and other survey strength.”
“The limiting factors within all of the above should cap EUR/USD in front of 1.10-12 before it retraces its most recent gains.”