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Sunrise Market Commentary

• Rates: Markets pleased with Macron-Le Pen run off
  Risk sentiment is positive overnight after the French election outcome. The Bund opens weaker, putting the German 10-yr yield more comfortably in the 0.2%-0.5% sideways range. French OAT's are expected to outperform. We have a negative bias for the US Note future as well as President Trump promised to unveil his tax cut plan this week.
• Currencies: EUR/USD and USD/JPY show relief-rebound after French election
  Overnight, the euro showed the expected Pavlov reaction as the first round of the French election turned out market friendly. The yen decline as safe haven positions were reduced. USD/JPY returned north of 110. The risk-on reaction might still continue early today, but we doubt that the election outcome will mark the start of a sustained euro rally.

The Sunrise Headlines

• US equities ended close to unchanged on Friday. Overnight, Asian risk sentiment is positive following the French election outcome. Chinese stocks underperform though as the regulator ordered insurers to focus on risk.
• Emmanuel Macron will go head-to-head against Marine Le Pen in the run-off election to become France's next president. Opinion polls suggest that Macron would beat the stridently anti-EU Le Pen by a wide margin.
• US President Trump says businesses and individuals will receive a "massive tax cut" under a tax reform package he plans to unveil on 'Wednesday or shortly thereafter'.
• Italy's credit rating was cut closer to junk territory on Friday by Fitch, who cited 'weak economic growth' and the country's 'persistent track record of fiscal slippage'. Fitch reduced the rating to 'BBB' (stable) from 'BBB+'.
• The IMF had a sobering message for Greece: Even if the country secures debt relief from its European creditors-a question that is by no means assured with bailout talks still deadlocked-the nation still needs even more painful economic overhauls than currently planned.
• European officials have revived their push for a European Monetary Fund to tackle future crises in the eurozone in place of the IMF, which has yet to say whether it will join the latest Greek bailout.
• Today's eco calendar contains German IFO business confidence. The Belgian debt agency conducts its monthly OLO auction and Fed governor Kashkari is scheduled to speak

Currencies: EUR/USD And USD/JPY Show Relief-Rebound After French Election

Can euro sustain initial post-election gain?

On Friday, Thursday's pro-Europe/France repositioning didn't continue. EUR/USD and USD/JPY held tight ranges respectively in the 1.07 and the 109 area. Investors kept a wait-and-see modus going into the first round of the French elections. The EMU PMI was strong, but ignored.

Overnight, the outcome of the first round of the French election avoided the negative scenario of a runoff in the second round between Marine Le Pen and Jean-Luc Mélenchon. Macron is largely expected to win the second round against Marine Le Pen. This scenario is market friendly. Early in Asia, the result triggered the expected Pavlov reaction with equities, core bond yields and the euro jumping higher. The safe haven yen was sold. However, except for Japan, most regional equities already lost most gains. Chinese equities even show substantial losses on regulator intentions to curb leveraged trading. EUR/USD jumped north of 1.09, but returned part of the initial gain and is currently trading in the 1.0860 area. A similar reaction was visible in USD/JPY (currently trading just north of 110) and EUR/JPY (119.55 area).

Today, eco calendar is thin. The German April IFO business sentiment is the most important release. The market expects a stabilization of the headline figure (112.4). The decline in the German PMI last week (56.3 from 57.1) suggests some risks for a downward surprise. However, we still expect the index to stay at an elevated level. However, the focus FX trading will likely be on the fall-out from the First round of the French presidential election. Overnight, EUR/USD jumped temporary north of the 1.0875/1.0906 recent range top but no sustained break occurred yet. A euro positive momentum at the start of the European session is likely. However, we doubt that this will be the start of a protracted/sustained euro rebound. Key question is whether the European interest rate market already considers the removal of the French political tail risk a good enough reason for the ECB come closer to policy normalisation. At this week's ECB meeting, we don't expect a real positive change in the ECB's assessment. On the US side of the equation, interest rates also discount a mediocre scenario on the US economy and on the potential of the Trump administration to deliver fiscal reforms. So, there is also room for a rebound in US yields . A slightly narrowing of the interest rate differential between the US and Europe is possible short-term, but we don't expect the move to go really far. In this context won't expect EUR/USD to break the 1.10 barrier in a sustained way.

For USD/JPY (and EUR/JPY) the day-to-day momentum will probably be constructive as both cross rates will get support from a risk-on context and from higher core bond yields.

From a technical point of view, USD/JPY broke below the 110 key support. We downgraded our USD/JPY assessment to bearish. Next key support (62% retracement) comes in at 107.18. Today's rebound confirms that a bottoming out process might be in store. However, the pair needs to regain the 112.20 level (neckline ST double bottom) to really improve the technical picture of this cross rate. EUR/USD extensively tested the topside of the MT range (1.0874/1.0906 area) late March, but the test was rejected and EUR/USD returned lower in the 1.0875/1.05 range. The move met support in the 1.06 area and the pair again tested the range top after the French election this morning. We look out how this test turns out, but we are not convinced on a sustained break higher. If EUR/USD would regain the 1.10 barrier next resistance comes in in the 1.1145/1.13 area (US pre/post-election swings).

EUR/USD: testing the 1.0906 range top

EUR/GBP

EUR/GBP returns to the 0.85 area

On Friday, the UK March retail sales declined more than expected, but the damage for sterling was limited. Cable was well bid going into the publication of the report (intraday top of 1.2835) but returned to the big figure after the release. So, for now, soft UK data still have only a modest impact on sterling. Later sterling also ignored hawkish comments from BoE ‘s Saunders. EUR/GBP closed the session at 0.8378 . Cable finished the week at 1.2817.

This morning, the sterling price action was also dominated by the global reaction after the French election. Euro strength prevailed. EUR/GBP jumped to the 0.85 area. Cable lost slightly ground as the dollar gains more from the risk-on repositioning than sterling. Later today, the CBI trends orders will be published. A modest softening from 15 to 12 is expected. Of late, sterling didn't react to much to eco data. The euro reaction to the French elections will remain the main driver for sterling trading. As we don't expect a protracted rebound of EUR/USD, further EUR/GBP gains are also not evident short-term. We had a neutral short-term bias on EUR/GBP. Early last week, EUR/GBP dropped below the bottom of the EUR/GBP 0.84 support, improving the sterling picture. The pair came within reach of the key 0.8305 support (Dec low), but. no real test occurred. After this morning's rebound, the range bottom looks better protected. Longer term, Brexit-complications remain a potential negative for sterling. Of late, this was not the focus of sterling trading. Nevertheless on technical considerations we are inclined to reconsider a cautious EUR/GBP buy-on-dips approach.

EUR/GBP: jumps on French election. 0.83 range bottom looks safe for now

Download entire Sunrise Market Commentary

EUR/USD

Current level - 10870

The results of the French election's first round led to a massive rise all the way up to 1.0940 resistance area and current pullback is testing 1.0826 support zone, for a further slide towards 1.0780 area. Minor resistance is projected at 1.0870.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 110.20

The break through 109.40 hurdle signals a positive outlook, for a further rise towards 111.50 zone. Initial intraday support lies at 110.10, followed by 109.40.

GBP/USD

Current level - 1.2791

The lack of trend dynamics here signals a break through 1.2770, for a dip to 1.2705 support area. 

Market movers today

Attention during the first hours of trading wi ll be on the market digesting the outcome of the first round of the French presidential election whi ch was held yesterday. See below in ‘Selected market news'.

In terms of data releases, German ifo expectat ions are published. The figure is at a high level, pointing to strong GDP growth in Germany. The latest move higher reflects primarily better expectations for the manufacturing sector after a couple of years where these expectat ions moved broadly sideways. Looking ahead, we believe the overall expectat ions are likely to move lower, as it is hard to cont inue to expect a further improvement following a period of good news.

In the US, FOMC member Kashkari (voter, dovish) speaks tonight . Market participants will listen carefully for any hints or details on quant itative tightening.

Selected market news

In France, the independent Emmanuel Macron and Front Nat ional's Marine Le P en have come out as the two leading candidates of the first round of the presidential election, with 23.9% and 21.4%, respectively (with 97% of votes counted). Participation at 78% was higher than previously expected, which seems to have benefitted Macron. See French election: Macron vs Le Pen - Short-term implications for Euro and Nordic markets after first election round (24 April) for more details.

The two candidates will face each other in a second runoff on 7 May. It is the first time in modern French history that both candidates from the established part ies (Socialists and Republicans) are absent in the runoff. Macron has consistently been the favourite to win according to second round opinion polls with a relatively steady 60% to 40% lead versus Le Pen. Furthermore, Macron has already received the endorsement from both Fillon and Hamon, as well as some senior conservat ives, France's biggest union and ministers from the current Socialist government .

While the election outcome was roughly in line with prior opinion polls, we st ill could see a short term relief-rally in risk assets. However, given that equity markets have been very complacent about the upcoming French presidential election we do not expect a big move. Instead, equity markets will be back focusing on growth.

In fixed income markets, the Bund sell-off that started last week could take another leg today and cause further German ASW tightening. France is likely to be the top performer in the EGB market today with the rest of the semi-core and periphery also tightening vs Germany.

With the prospect of a euro-sceptic as the next French president now fading, EUR crosses have seen a clear relief rally overnight and EUR/USD init ially jumped to the 1.09 level (from just above 1.07 on Friday). As a Macron win now seems highly likely, Le Pen will need to see a significant surge in the polls to shake the single currency during the runoff over the next few weeks. Hence, we expect EUR/USD to be little changed on this result and still look for the 1.04-1.10 range in 1-3M.

Cable is making a strong rise away from 1.2364, clearly in impulsive fashion which can see an extension up to 1.3040 area for wave C. In the meantime be aware of short-term set-back which will be seen as fourth sub-wave within an uptrend. We see market in bullish mode now as long as pair trades above 1.2620.

GBPUSD, 4H

Key Points:

• The technical bias is looking near-term bullish.
• Trade data should see gains extend in the week to come.
• 100 day EMA likely to keep upsides somewhat in check.

The Kiwi Dollar had an interesting week last week and saw some fairly volatile trading despite the broadly bullish trend. As a result, it is worth taking a closer look at what was driving prices and what should be kept in mind as we move forward. In particular, we need to examine what fundamentals could underpin the price action during the coming few sessions.

Starting with last week’s performance, the Kiwi Dollar continued to make steady progress, rallying to 0.7033 following some disappointing US economic news and simultaneously buoyant NZ fundamental figures. Notably, on the US side of things, the respective slips in the Empire State Manufacturing and Philadelphia Federal Manufacturing indices to 5.2 and 22.00 saw selling pressure build during the week, as did the weaker Market Flash Manufacturing PMI result of only 52.8. However, momentum was not solely derived from the US figures as the NZ CPI numbers also saw a sizable uptick of 2.2% q/q which is in stark contrast to the measly 1.3% seen previously.

As for the impending week’s fundamentals, aside from the bevy of US data on offer, there is a handful of NZ –centric news items due out which will be worth watching closely. Namely, the trade numbers are set to be posted on Thursday alongside the nation’s Building Consents which should see some increased volatility during the session. More importantly, however, the Trade Balance is projected to increase to 370M this time around which represents a sizable improvement on the prior posting. As a result, the NZD could build on any early gains made during the week or even reverse any losses stemming from potentially stronger US figures on Tuesday.

As for the technical readings, the NZDUSD should have some bullish sentiment remaining but gains could be capped around the 0.7041 handle. On the one hand, the EMA bias is transitioning to bullish as a result of the recent crossover of the 12 and 20 day averages. Additionally, both the Parabolic SAR and the MACD readings are bullish which should aid in keeping buying pressure in place. However, on the other hand, stochastics are moving into overbought territory and the 100 day EMA is looming nearer which should be an excellent source of dynamic resistance around the 0.7041 mark.

Ultimately, the outlook for the NZD is rather bullish for the week to come, especially if the trade data comes in on target. Even in the case that it doesn’t, if the trend of mixed US numbers continues,the pair’s technical bias should help in pushing it higher which is worth pricing in moving ahead. However, keep the 100 day EMA in mind as it is unlikely that this resistance is broken just yet.

Key Points:

• Price action stalls at 1.28 handle.
• RSI Oscillator strongly overbought.
• 1.2754 support zone will need to hold if pair has chance of resuming rally.

The Cable had a tumultuous week as the U.K. Prime Minister, Theresa May, shocked the market with a snap election to strengthen her mandate for a Brexit. This caught the market off-guard and saw the pair rally nearly 200 pips. However, it remains to be seen if it can continue its upward trajectory in the week ahead. Subsequently, we take a look at what occurred and what potentially looms on the horizon for the venerable Cable.

Last week provided some surprises for the market as an announcement from U.K. Prime Minister, Theresa May, called for a snap election to decide the Brexit issue once and for all. The canny May is seeking to bolster her mandate to take the island nation through a hard Brexit. Subsequently, the cable rallied like there was no tomorrow to test the 1.29 handle. However, a range of disappointing data stalled the move, with the U.K. Retail Sales falling to 1.7% y/y (3.4% exp), and the pair subsequently moderated and closed the week out around the 1.2803 mark. The latter part of the week also brought some news from the U.S. that the Trump administration is considering tax cuts which also added to the moderating forces.

Looking ahead, there are some key events looming for the pair in the week ahead with the U.K. Advance GDP and U.S. Unemployment Claims data due out. In particular, the Advance GDP figures are going to be a key focus early in the week with the metric forecast to come in at 0.4% q/q. However, anything is possible given last week’s relatively weak retail sales data which emanated from the United Kingdom. In addition, the U.S. Initial Jobless Claims are also due out and most economists have that figure coming in at 242k. Subsequently, there are quite a few data points that could provide plenty of volatility for the Cable in the week ahead.

From a technical perspective, the Cable’s recent surge has seen it break sharply above the 100MA which suggests that the long term move from 1.2108 has yet to complete. However, the RSI Oscillator is strongly overbought, and the failure to breach 1.29 is likely to suggest a period of moderation. Subsequently, our initial bias for the week ahead is neutral given some of the mounting risks. Support is currently in place for the pair at 1.2754, 1.2625, and 1.2545. Resistance exists on the upside at 1.2844, 1.2904, and 1.3121

Ultimately, the coming week is likely to prove relatively critical for the pair given its current valuation just below the 1.2900 handle. However, if the pair can hold above the 1.2754 zone of support it might allow it to build up some steam for another crack at the April high. In the case of a breach of this level, all bets are off, and you could see the air rapidly deflate from the balloon that is the Cable. Subsequently, there is plenty of risk floating around in the coming days and we will have to wait and see which way it goes.

European equity markets are poised to start the week on a positive note on Monday after the first round of the French elections suggested that the populist wave that engulfed the UK and US in 2016 has not quite breached the borders of the eurozone countries.

While it's clear that populism is growing in the region as it is elsewhere, the victory for Emmanuel Macron in the first round may well have crushed the chances of Marine Le Pen in two weeks' time. Even when the polls had Le Pen taking the first round, Macron was comfortably expected to win the head to head but with the centrist candidate having toppled her on Sunday, the leader of the National Front would appear to have a monumental job on her hands.

While the result on Sunday was largely in line with what the latest polls had been projecting, we did see a more cautious approach from investors heading into it having learned their lessons from last year. The relief rally in the euro overnight are a clear sign of this, with it having hit its late March highs above 1.09 against the dollar before paring gains.

Obviously there is still two weeks to go until the second round of voting and while Macron looks highly likely to succeed, the populist vote has surprised us in the past and may well again. It will be interesting to see whether the same complacency that left us surprised last June – when the UK voted to leave the EU – creeps back into the markets in the coming weeks or if the same caution that spurred the relief rally overnight lingers.

With this week and particularly today looking a little quiet on the economic calendar – barring the ECB meeting on Thursday and a couple of other releases – we're likely to see focus remain on the situation in France and Le Pen's efforts to prove the pollsters wrong. As was the case in the Netherlands, the first round of voting will be seen as a success for those seeking the status quo in the eurozone and with the AfD in Germany standing little chance in September, a similar result in two weeks may see the region survive the year unscathed. Assuming, of course, we don't see elections in Italy.

For the 24 hours to 23:00 GMT, the AUD rose 0.13% against the USD and closed at 0.7535 on Friday.

LME Copper prices declined 0.2% or $10.5/MT to $5601.0/MT. Aluminium prices declined 0.03% or $0.5/MT to $1932.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7552, with the AUD trading 0.23% higher against the USD from Friday’s close.

The pair is expected to find support at 0.7519, and a fall through could take it to the next support level of 0.7486. The pair is expected to find its first resistance at 0.7579, and a rise through could take it to the next resistance level of 0.7606.

With no economic releases in Australia today, investor sentiment would be governed by global macroeconomic factors.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.11% against the USD and closed at 1.0701 on Friday, amid concerns over the outcome of first round of voting in French presidential elections.

Earlier in the session, the Euro gained ground after robust manufacturing and services sector data in the Euro-zone highlighted a strong start to the second quarter, amid buoyant demand and strong growth in the region's employment.

The Euro-zone's flash Markit manufacturing PMI unexpectedly advanced to a level of 56.8 in April, expanding at its fastest pace since April 2011, compared to a level of 56.2 in the prior month. Markets were anticipating the PMI to drop to a level of 56.0. Moreover, the region's preliminary Markit services PMI surprisingly rose to a six-year high level of 56.2 in April, defying market consensus for a fall to a level of 55.9 and following a reading of 56.0 in the previous month.

Other economic data indicated that the region's seasonally adjusted current account surplus expanded to a level of €37.9 billion in February, following a revised surplus of €26.1 billion in the previous month.

Elsewhere, activity in Germany's manufacturing sector slowed to a level of 58.2 in April, compared to a level of 58.3 in the prior month. Markets were anticipating the PMI to fall to a level of 58.0. Further, the nation's services sector growth eased more-than-expected to a level of 54.7 in April, compared to market expectations of a fall to a level of 55.5. In the previous month, the PMI had registered a level of 55.6.

In the US, data indicated that the preliminary Markit manufacturing PMI unexpectedly eased to a seven-month low level of 52.8 in April, confounding market expectations of a rise to a level of 53.8, thus offering further sign that the world's largest economy was losing momentum. The PMI had recorded a reading of 53.3 in the prior month. Also, the nation's services PMI registered an unexpected drop to a level of 52.5 in April, hitting its lowest level in seven-months. The PMI had recorded a level of 52.8 in the previous month, while investors had envisaged for a rise to a level of 53.2.

On the other hand, the nation's existing home sales rebounded more-than-anticipated by 4.4% on monthly basis in March, surging to its highest level in more than ten years. Markets expected existing home sales to gain 2.2%, after recording a revised drop of 3.9% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.0838, with the EUR trading 1.28% higher against the USD from Friday's close, after the centrist candidate, Emmanuel Macron, won the first round of the French presidential election, reducing the risk of an anti-establishment shock in the final round.

The pair is expected to find support at 1.0712, and a fall through could take it to the next support level of 1.0587. The pair is expected to find its first resistance at 1.0931, and a rise through could take it to the next resistance level of 1.1025.

Going ahead, investors will look forward to Germany's Ifo expectations and business climate indices for April, slated to release in a few hours. Additionally, in the US, the Dallas Fed manufacturing activity index for April and the Chicago Fed national activity index for March, both scheduled to release later today, will be on investor's radar.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.09% against the USD and closed at 1.2795 on Friday, after disappointing retail sales data in Britain suggested that consumers are reigning in their spending amid a spike in inflation.

Data indicated that UK's retail sales declined more-than-expected by 1.8% on a monthly basis in March, compared to a revised advance of 1.7% in the prior month, whereas market participants anticipated for a fall of 0.5%.

In the Asian session, at GMT0300, the pair is trading at 1.2790, with the GBP trading slightly lower against the USD from Friday's close.

Overnight data showed that the nation's Rightmove house prices rose 1.1% on a monthly basis in April, after registering an advance of 1.3% in the prior month.

The pair is expected to find support at 1.2754, and a fall through could take it to the next support level of 1.2718. The pair is expected to find its first resistance at 1.283, and a rise through could take it to the next resistance level of 1.287.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.