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The DAX has inched upwards in the Tuesday session, as the index is currently trading at 12,445. The DAX climbed 1.2 percent on Monday, and has set a record high of 12,480 on Tuesday. It's a quiet day on the release front, with no German or Eurozone indicators on the schedule.

European stock markets jumped on Monday, buoyed by the results from the first round of the first round of the French presidential election. The markets breathed a collective sigh of relief, as opinion polls accurately forecast the outcome. The field of 11 candidates in the first round was pared to just 2 candidates, centrist Emmanuel Macron and far-right Marie Le Pen. Macron garnered 24% of the vote and Le Pen 22%. The runoff vote takes place on May 7 and French voters couldn't have a clearer choice as they head back to the polls on Sunday. Macron, who served as a minister under Socialist Francois Hollande, favors deregulation and is a staunch supporter of the European Union. Le Pen, who heads the National Front, has campaigned on a 'France first' platform, vowing to curb immigration and take France out of the eurozone. Hollande and Francois Fillon, who ran in the first round, have thrown their support behind Macron and asked voters to reject 'extremism'. Macron is a heavy favorite to win the second round and become president, with polls giving him a comfortable lead of above 60%.Since opinion polls were accurate ahead of the first round of voting, the markets appear to relying on the current polls as well, meaning that a Macron victory has been priced in. Unless this sentiment drastically changes during the week, the election will be a non-event for the market. At the same time, nothing is a sure thing in politics, as underscored by the Brexit vote and the election of Donald Trump, two events which stunned the markets and triggered strong market movement.

President Trump will have to reach out to the Democrats in order to avoid a shutdown of the federal government on Saturday. Congress must pass a spending bill which will fund the government until October, but the bill requires the backing of 60 senators. This means that the Republicans (who control 52 seats) will need the support of 8 Democrats. This has led to bipartisan negotiations, and it's reasonable to expect that these talks could go down to the wire, as both sides try to stick to their positions and try not to blink first. The last shutdown was in 2013, lasting 17 days. Another shutdown would be embarrassing for Trump, as it would start on his 100th day in office and would cast doubts on his ability to push his budget and tax plan through Congress.

GBP/CHF – 1.2760

  



GBP/CHF – Circle wave v ended at 0.9106 and major correction has commenced for subsequent gain to 1.5547.



Sterling found renewed buying interest at 1.2443 earlier this month and has rallied last week, the breach of indicated previous resistance at 1.2660 adds credence to our bullish view that the rebound from 1.2102 is still in progress and may extend further gain to previous resistance at 1.2915. Once this level is penetrated, this would confirm another leg of corrective upmove from 1.1475 low is underway, then further gain to 1.3000, then 1.3045-50 (50% Fibonacci retracement of 1.4614-1.1475) would follow but reckon previous chart resistance at 1.3122 would hold from here. 



To recap the larger degree count, the selloff from 2.4965 (July 2007) is the beginning of wave V with circle and is labeled as 1: 2.3760, 2: 2.4425, wave 3 extension ended at 1.1470, followed by wave 4 at 1.5547, the quick rebound from 0.9106 suggests wave 5 as well as entire circle wave V could have ended there, hence consolidation with mild upside bias is seen for major correction to take place, bring initial test of 1.5547 (previous 4th of a lesser degree).



On the downside, whilst initial pullback to 1.2690-00 cannot be ruled out, reckon previous resistance at 1.2660 would limit downside and bring another rise later. Below 1.2595-00 (another previous resistance) would defer and risk correction to 1.2552 support but only a daily close below this level would abort and signal top is formed instead, risk further fall to 1.2500 and possibly towards 1.2460-65 but said support at 1.2443 should remain intact. 

 


Recommendation: Buy at 1.2650 for 1.2850 with stop below 1.2550.


On the Monthly chart, the longer-term count is that major downtrend is under way with circle wave I at 2.8645 (Sep 1.978), then wave II with circle at 4.6175 (Feb 1981), the wave III with circle ended at 1.7425 (Nov 1995) and followed by wave IV with circle at 2.4965 (July 2007 with a short wave C) and wave V with circle has possibly ended at 0.9106. A monthly close above 1.5547 would add credence to this view, bring major correction to 1.7000, then towards psychological level at 2.0000.

Notes/Observations

Protectionism moving from theme to reality

Effects from French elections begin to subside for the time being

Overnight:

Asia:

BOJ Dep Gov Iwata: Doing internal simulations of exit from QE; Too early to discuss exit externally

South Korea Nuclear Envoy Chief: Discussed with US, Japan counterparts ways to gain cooperation from China and Russia on North Korea

Europe:

Marine Le Pen steps down as president of National Front Party to be 'above' party considerations ahead of France presidential second-round vote. Move seen to widen her appeal ahead of next month's presidential election run-off and reach out to potential voters who backed the Eurosceptic and protectionist far-Left candidate

EU reportedly updates draft Brexit guidelines to include citizens' residence rights

Britain will have to settle €2.0B charge from the European Union over customs fraud before it can agree a Brexit trade deal

Italy govt raising taxes on tobacco and gambling and cracking down on evasion of value added tax to help it reduce this year's budget deficit as demanded by EU

Americas:

President Trump has called on the UN Security Council to be prepared to impose additional sanctions against North Korea’s nuclear and ballistic missile programs

Trump tax plan reportedly to include corporate tax rate cut to 15% andto prioritize tax cuts over deficit reduction

US Commerce Dept finds Canada softwood lumber exporters get subsidies; 20% tariff to be applied retroactively

Energy:

Norway Petroleum Directorate (NPD) Mar Oil Production: 1.73M bpd

Economic Data

(NO) Norway Q1 House Price Index Q/Q: 1.9% v 2.7% prior

(FR) France Apr Business Confidence: 104 v 104e; Manufacturing Confidence: 108 v 105e, Production Outlook Indicator: 1 v 3e, Own-Company Production: 14 v 13e

(FR) France Apr Business Survey Overall Demand: 14 v 12 prior

(ES) Spain Mar PPI M/M: -0.8% v -1.2% prior; Y/Y: 6.0% v 7.4% prior

(DK) Denmark Mar Retail Sales M/M: 0.3% v 0.2%e; Y/Y: +2.6% v -3.4% prior

(SE) Sweden Mar Unemployment Rate: 6.8% v 7.3%e, Unemployment Rate (Seasonally Adjusted): 6.4% v 6.8%e

(UK) Mar Public Finances (PSNCR): £34.3B v £12.9B prior; Public Sector Net Borrowing: £4.4 v £1.5Be v £1.1B prior, Central Government NCR: +£18.3B v -£3.7B prior, PSNB ex Banking Groups: £5.1 v £3.1Be

(HK) Hong Kong Mar Trade Balance (HKD): -42.3B v -55.5Be, Exports Y/Y: 16.9% v 10.4%e, Imports Y/Y: 13.0% v 12.5%e

Fixed Income Issuance:

(ID) Indonesia sold total IDR17T vs. IDR15T target in 5-year, 10-year, 20-year and 30-year Bonds

(EU) EFSF opened book to sell combined €8.0B in 2027 and 2043 bonds via syndicate

(NL) Netherlands Debt Agency (DSTA) sold €2.1B vs. €2.0-3.0B indicated range in 0.75% 2027 DSL Bonds; Avg Yield: 0.570% v 0.707% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.2% at 3,581, FTSE +0.2% at 7,282, DAX flat at 12,457, CAC-40 +0.2% at 5,277, IBEX-35 -0.3% at 10,734, FTSE MIB +0.2% at 20,728, SMI +0.5% at 8,753, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board after a raft of corporate earnings pre-market, and as market participants further digest Sunday’s first-round French election results; shares of LVMH leading the gains in the Eurostoxx after announcing it is to acquire Christian Dior’s Couture unit for €6.5B in cash and shares; Banking stocks trading generally lower in the index with shares of Deutsche Bank, BBVA, and Santander leading the sector losses; Healthcare stocks leading the gains in the FTSE 100 with shares of Hikma Pharmaceuticals and Shire leading the gains in the index, shares of AstraZeneca and Shire also trading notably higher; Energy stocks also trading higher as oil prices trade higher intraday; commodity and mining stocks trading lower in the index despite copper prices trading sharply higher intraday; shares of Whitbread the notable laggard after releasing better than expected FY16 results but providing some negative outlook relative to cost headwinds.

A plethora of upcoming scheduled US earnings (pre-market) include Avangrid, AK Steel, AutoNation, Astec Industries, Allegheny Technologies, Anixter International, Baker Hughes, Biogen, BankUnited, Caterpillar, CIT Group, Centene Corp, E.I. Du Pont, Brinker International, Freeport McMoran, Fifth Third, FNB, Gannett, Corning, Graphic Packaging, Hubbell, JetBlue Airways, Coca-Cola, Laboratory Corp of America, Eli Lilly, Lockheed Martin, Masco, McDonald’s, McDermott International, 3M, Nielsen Company, Northern Trust, Paccar, PulteGroup, Polaris Industries, Pentair, Ryder System, Rite Aid, Stepan, S&P Global, Sensata Technologies, Supervalu, T. Rowe Price, TransUnion, Tupperware Corp, Valero Energy, Wabtec, Waters Corp, Watsco, and Xerox.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Christian Dior CDI.FR +11.7% (LVMH to acquire Couture unit), Continental CON.DE -2.4% (to invest €300M in Powertrain division), Carpetright CPR.UK -7.4% (12-week sales), Essilor International EI.FR +0.7% (Q1 sales), Plastic Omnium POM.FR +3.6% (Q1 sales), Puma PUM.DE +2.8% (Q1 results), Whitbread WTB.UK -7.5% (FY16 results, div increase)]

Financials: [Intrum Justitia IJ.SE -0.7% (Q4 results), Randstad RAND.NL -0.6% (Q1 results), Swedbank SWEDA.SE -1.4% (Q1 results)]

Healthcare: [Novartis NOVN.CH +2.2% (Q1 results)]

Industrials: [Metso MEO1V.FI +5.2% (Q1 results), Schindler Holding SCHP.CH -1.0% (Q1 results), UPM UPM1V.FI +4.6% (Q1 results), Volvo VOLVA.SE +7.4% (Q1 results)]

Materials: [Covestro 1COV.DE -2.1% (Q1 results), Lonza LONN.CH +3.6% (Q1 trading update)]

Telecom: [Ericsson ERICB.SE -2.3% (Q1 results)]

Speakers

ECB's Nowotny (Austria): Brexit fears have been under-estimated; many negative surprise could come up. Did not expect the 2-year Brexit negotiation timeframe to be extended

ECB Bank Lending Survey: Net standards for home loans unchanged in 2Q. Banks expected a slight net tightening of standards for company loans in 2Q. Negative deposit rate had a positive impact on lending

EU's Dombrovskis reiterated view that region's economy was recovering but uncertainties remain

IMF's Obstfeld reiterates IMF view that its too early for ECB to exit its stimulus program

Russia Energy Min Novak: Russia will wait until May to decide on production cuts extension

Currencies

Euro paused after rally but remained within striking distance of ist 5-month highs that were achieved following the results of the French 1st round Presidential election. Euro has benefited from growing confidence that the market-friendly Macron would beat Le Pen to become the next French president.Dealers noted that Euro Zone money markets saw a chance of ECB rate hike in 2018 in the aftermath of the French 1st round of the Presidential vote. Analysts noted that ECB Draghi could help German Chancellor Merkel in the upcoming Sept elections by signaling that he intends to wind back some of the ECB's major stimulus policies. ECB unlikely to send strong new signals on monetary policy at its Thursday meeting ahead of the second round of the French presidential election.

CAD currency (Loonie) stumbled to hit 4-month lows after the US announced new duties on Canadian lumber. USD/CAD was above the 1.3570 level. Trump administration was taking retaliatory action against Canada over a decades-old trade dispute, moving to impose a 20% tariff on softwood lumber that is typically used to build single-family homes

Fixed Income

Bund futures trade at 161.17 down 18 ticks maintaining downward momentum following yesterdays sharp falls as supply pressures weigh. Continued downside targets yesterday low at 160.93 then 160.72 followed by 160.15. Resistance moves to 161.63 followed by 162.02 then 162.52 gap fill.

Gilt futures trade at 128.01 down 37 ticks approaching support at 127.95, with follow through targeting yesterday low at 127.76. A reversal eyes 128.81 followed by 129.14. Short Sterling futures trade flat to down 2bp with Jun17Jun18 trading at 12.5/13bp.

Tuesday's liquidity report showed Monday's excess liquidity rose to €1.576T a rise of €15B from €1.561T prior. Use of the marginal lending facility fell to €207M from €218M prior.

Corporate issuance saw $2.6B come to market via 3 issues headlined by US Bancorp $1.3B 10 year note and TD Amertrade $800M 10 year senior notes. This puts monthly issuance at $58.8B.

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (prior €14.8B with 38 bids recd)

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (PL) Poland to sell Bonds

05:30 (DE) Germany to sell €4.0B in 2019 Schatz

06:00 (TR) Turkey to sell 11% 2022 Bonds

06:45 (US) Daily Libor Fixing

07:00 (DE) German Chancellor Merkel at G20 Womens’ Summit

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%

08:15 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (US) Feb FHFA House Price Index M/M: 0.4%e v 0.0% prior

09:00 (US) Feb S&P / Case-Shiller 20-City M/M: 0.73%e v 0.86% prior; Y/Y: 5.77%e v 5.73% prior; House Price Index (HPI): No est v 192.81 prior

09:00 (US) Feb S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.87% prior, House Price Index (HPI): No est v 185.51 prior

09:00 (BE) Belgium Apr Business Confidence: No est v -1.6 prior

09:00 (EU) Weekly ECB Forex Reserves

09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement

09:00 (RU) Russia weekly OFZ bond auction announcement

09:30 (BR) Brazil Mar Current Account: +$0.5Be v -$0.9B prior; Foreign Direct Investment (FDI): $7.0Be v $5.3B prior

10:00 (US) Mar New Home Sales: 584Ke v 592K prior

10:00 (US) Apr Consumer Confidence: 122.5e v 125.6 prior

10:00 (US) Apr Richmond Fed Manufacturing Index: 16e v 22 prior

11:30 (US) Treasury to sell 4-week and 52-week Bills

11:30 (NO) Norway Central Bank ( Norges) Dep Gov Nicolaisen speaks in Oslo

12:30 (DE) German Chancellor Merkel with China Foreign Min Yang Jiechi

13:00 (US) Treasury to sell 2-Year Notes

15:00 (AR) Argentina Mar Trade Balance: -$0.4Be v -$0.1B prior

15:00 (AR) Argentina Feb Economic Activity Index (Monthly GDP) M/M: No est v -0.5% prior; Y/Y: 0.0%e v +1.1% prior

16:30 (US) Weekly API Oil Inventories

EUR/JPY - 120.07

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term down

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Despite yesterday’s rally to 120.88, the subsequent retreat suggests consolidation would be seen and pullback to 119.50-60 cannot be ruled out, however, reckon downside would be limited to 118.92 support and bring another rebound later. Only break of said resistance at 120.88 would signal the rise from 114.85 low has resumed and extend further gain to 121.00, then towards 121.80-85 but resistance at 122.26 should remain intact.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 118.92 support would defer and suggest a temporary top is formed, bring weakness to 118.50, however, downside should be limited to 118.00-10 and previous resistance at 117.82 (now support) should hold and bring another rise later. 

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7534

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term down

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Despite yesterday’s initial strong rebound to 0.7592, the subsequent retreat has retained our view that further consolidation would take place and weakness towards 0.7491 cannot be ruled out, however, break of support at 0.7473 is needed to signal recent decline from 0.7750 has resumed and extend weakness to 0.7450-55 (50% Fibonacci retracement of 0.7158-0.7750) but reckon downside would be limited to 0.7380-85 (61.8% Fibonacci retracement), risk from there is seen for a rebound later.

On the upside, expect recovery to be limited to 0.7565-70 and said resistance at 0.7592 should hold. Only break of said resistance at 0.7611 would signal low has been formed at 0.7473, bring a stronger rebound to 0.7650 but resistance at 0.7680 should hold from here, price should falter below 0.7700-10, bring another decline later. As near term outlook is still mixed, would be prudent to stand aside in the meantime. 

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

The euro has edged higher in the Tuesday session, as the pair trades at the 1.09 line. On the release front, it's another quiet day in the Eurozone, with no major events. In the US, we'll get a look at two key events. CB Consumer Confidence is expected to improve to 123.7, while New Home Sales is forecast to edge lower to 590 thousand.

The markets breathed a collective sigh of relief late Sunday, as opinion polls accurately forecast the outcome of the French presidential election. The field of 11 candidates in the first round was pared to just 2 candidates. The winners? Centrist Emmanuel Macron and far-right Marie Le Pen. Macron garnered 24% of the vote and Le Pen 22%. The runoff vote takes place on May 7 and French voters couldn't have a clearer choice as they head back to the polls on Sunday. Macron served as a minister under President Francois Hollande. He favors deregulation and is a staunch support of the European Union. Le Pen, who heads the National Front, has campaigned on a 'France first' platform, vowing to curb immigration and take France out of the eurozone. Hollande and Francois Fillon, who ran in the first round, have thrown their support behind Macron and asked voters to reject 'extremism'. Macron is a heavy favorite to win the second round and become president, with polls giving him a comfortable lead of above 60%.Since opinion polls were accurate ahead of the first round of voting, the markets appear to relying on the current polls as well, meaning that a Macron victory has been priced in. Unless this sentiment drastically changes during the week, the election will be a non-event for the market. At the same time, nothing is a sure thing in politics, as underscored by the Brexit vote and the election of Donald Trump, two events which stunned the markets and triggered strong market movement.

Donald Trump has plenty on his plate, but he will have to put in some overtime this week to avoid a shutdown of the federal government on Saturday. Congress must pass a spending bill which will fund the government until October, but the bill requires the backing of 60 senators. This means that the Republicans (who control 52 seats) will need the support of 8 Democrats. This has led to bipartisan negotiations, and it's reasonable to expect that these talks could go down to the wire, as both sides try to stick to their positions and try not to blink first. The last shutdown was in 2013, lasting 17 days. Another shutdown would be embarrassing for Trump, as it would start on his 100th day in office and would cast doubts on his ability to push his budget and tax plan through Congress.

The Aussie was sharply lower on Tuesday and filled Monday's gap, after breaking back below 200SMA (0.7549).

Formation of Hanging Man yesterday generated bearish signal that resulted in bearish acceleration that so far retraced nearly 61.8% of 0.7490/0.7582 upleg.

Near-term technicals returned to bearish mode, shifting risk lower and pressuring next key supports at 0.7523/16 (100SMA / daily cloud base) loss of which is needed to confirm an end of recovery phase from 0.7490.

Upticks should be capped by 200SMA (also top of hourly cloud) and daily close below here will be seen as bearish signal to maintain downside pressure.

Res: 0.7541, 0.7549, 0.7569, 0.7582
Sup: 0.7516, 0.7490, 0.7471, 0.7453

FX markets quick to target CAD and MX after Trump's action on Canadian wood

US President Donald Trump had been talking about placing tariffs on Canadian timber and dairy forever; however no announcement (if any) was expected until next week. But overnight Trump unexpectedly imposed a tariff of up to 24% on Canadian wood exports. This seems to be a response to Canada's long-standing taxes on US daily imports, which the Trump administration views as unfair.

The trade dispute escalations highlight simmering discontent regarding NAFTA and it meant the FX markets were quick to target CAD and MXN. With Trump nearing his first 100 days with little of the “winning” promised, he will be quick to score cheap points with his core political base. Renewal of protectionist sentiment will likely upset upcoming NAFTA renegotiations, keeping NAFTA FX trades under selling pressure. In addition, the focus on dairy prices will highlight NZD issues.

Markets had been lulled into a false sense of security after Trump's retreating from harsh China rhetoric and broader legislative failures. However, this policy action is a clear illustration of the ease in which he can enact punitive trade policy. CAD came under significant selling pressure as news of the action hit the wires. We remain constructive on USDCAD, which has rallied above its falling trend line for December, targeting a range high at 1.3600.

US budget deficit back under the spotlight

On Tuesday, financial markets continued to digest the result of the first round of the French election but the focus is slowly shifting towards the US as Trump announced he will unveil his “phenomenal” tax reform and put it protectionist trade policy back on the drawing board. Nevertheless the dollar index was mostly trading sideways this morning, suggesting that the market is very suspicious regarding Trump's announcement. In fact, it seems that the market is not even buying his stories anymore and would rather wait for concrete actions.

We are very suspicious that Trump's tax cut reform will pass the Congress as it will make the US deficit to balloon. In addition, the timing couldn't be worse as US budget deficit has become the new hot topic recently as the government is running out of money, meaning that a government shutdown is looming. There is little chance that the Trump administration will get the Congress to sign its tax cut reform, while at the same time getting it to sign off another spending bill. Trump is indeed in a deadlock.

In such an environment, we should continue to see some inflow in the single currency. The shift towards riskier asset should continue, even though the market is converging towards a new port-French-first-round-election equilibrium for now. Against this backdrop, we remain dollar negative dollar, waiting for further clarity on the US outlook and more specifically US budget story. The yellow metal was down another 0.50% today, while the Japanese yen slid 0.60% with USD/JPY rising to 110.40. After breaking successfully its 200dma to the upside, EUR/USD is now testing the key resistance at 1.0865 (Fibonacci 38.2% on August 2015-Januray 2016 debasement). A break of the latter would open the road towards 1.12 (Trump pre-election level). The ongoing French election will remain a hurdle for the single currency in the short-term.

As volatility drops, investors will demand EM FX

The most interesting result of the French election vote was the collapse of volatility indicators globally. The VIX index declined -19% from 15.30 while EURUSD one-month implied volatility fell to 8.20 from 13.45. The JP Morgan G7 volatility index fell to 8.03, a level not seen since November 2014. With volatility declining, a critical input in Emerging Markets investing is satisfied.

Looking forward to the next 2-3 months we are seeing clear sailing for EM investing. While developed markets are marginally rising, they remain significantly overvalued with corporate earning failing to warrant extended prices (INDU trailing 12-month PE at 20.81 and dividend yields 2.35 are both running well above historical averages). Given weak earnings, we doubt a mad rush from cash/EM in to European/US stocks, however there remains value in EM corporate. We concede that President Trump's renewed protectionism is concerning but given his lightening quick attention span, it is unlikely to remain a dominant policy objective (considering his healthcare and tax reform priorities).

We would avoid ZAR, TRY and MXN due to idiosyncratic risks but suspect yield chasers will migrate into high yielding EM. Finally, those that point to once historical accurate “sell in May” as a trading rationale, well there is not much to say there. Traders should watch today's US housing data, consumer confidence and manufacturing survey for the general direction of the US economy (and potential repricing for the Fed rate path).

Following the somewhat centrist victory in the first round of the French Presidential Elections global markets appear to be have gained some risk appetite back with Asian equities reaching a near 2 year high on Tuesday. The election also helped lift EUR and put downward pressure on safe-haven instruments. It is therefore likely that European equities will have a strong start this morning.

French Polls show Emmanuel Macron defeating anti-euro nationalist Marine Le Pen by as much as 30 percentage points in the second round of the French presidential election on May 7th.

Markets are likely to see additional impetus with President Trump promising an announcement on US Tax Reforms on Wednesday.

EUR was holding steady at $1.0885, retaining most of Monday’s 1.3 percent gain where EUR posted its strongest one-day performance in nearly a year; lifting EUR to a near 6 month high.

EUR gains had weighed on the dollar index, which touched a four-week low overnight. The index was marginally higher at 99.134, failing to make up most of Monday’s 0.9 percent loss.

USD advanced 0.4 percent to 110.32 JPY extending Monday’s 0.5 percent jump as investors sold off the “safe-haven” JPY.

Oil recovered marginally, following a week of losses, although gains were restricted by concerns that purported output cuts may not affect the current oversupply in global markets.

Gold recovered from last week’s lows of 7095 trading up to 1278.06 in early trading before retracing back to 1270.28.

Metals are in a pullback for the last week or so which is seen as a temporary retracement and reason is a substructure of a decline which is clearly slow, choppy and overlapping on hourly chart, therefore it represents a correction within uptrend. We see one leg missing; wave C) to complete a seven leg decline, ideally at 1246-1255 zone.

GOLD, 1H