One thing we haven't heard often in the past year was "the polls were right" but that was exactly what unfolded on Sunday in France as Macron and Le Pen won the first round of the election. The euro opened nearly 200 pips higher at the open with yen tumbling. CFTC positioning data showed few GBP shorts getting cleared out despite last week's jump. The Premium EURAUD long was closed for 240-pip gain, EURUSD long remains 205 pips in the green and EURJPY was stopped out at 190-pip loss.

The final tally isn't yet in but Macron and Le Pen will be in the final round of the Presidential election on May 7. The final results show Macron at 23.8% and Le Pen at 21.6% as of 0:56 am France Time at 95.6% participation. As the earliest numbers rolled in, Fillion conceded and threw his support behind Macron. There had been a slight chance he would stay mum or support Le Pen. Other candidates also endorsed Macron for the final round.

This result was as much a win for pollsters as for Macron. Despite many surveys showing him and Le Pen ahead, the market was cautious after Brexit and Trump. The same pollsters show Macron with a 20-point lead in the final round.

We warned last week that fears in the market were overstating a black swan scenario and the jump in the euro at the open underscored that. It climbed to as high as 1.0937 – a jump of more than 200 pips. EUR/JPY climbed nearly 400 pips.

Expect to see profit taking in fairly short order. Those moves are too big and the same types of fears may start to infect the second round. We will be watching the European open very closely for another surge of volatility. Also note that a finish above 1.0864 would be the best since November.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -22K vs -19K prior JPY -30K vs -35K prior GBP -99K vs -106K prior CHF -14K vs -10K prior AUD +43K vs +45K prior CAD -33K vs -32K prior NZD -15K vs -15K prior

The squeeze after Theresa May called the election certainly caught a few people on the wrong side but it wasn't a full-scale rush to the exits.

The first round of French Election voting has been completed and markets have been able to finally exhale.

We now know that it will be Emmanuel Macron and Marine Le Pen that will face off in the second round of voting in two weeks time, as they came one and two in Sunday's run off election.

As you can see from the below results, Macron and Le Pen have taken out the first round, with Macron clearly in front:

Macron is now expected to beat Le Pen more comfortably in the second round of voting come the 7th of May, with forex markets pricing the result in well and truly in advance.

This is because both the Socialist and the Republican candidates have asked their voters to vote for Macron in the run-off vote as they all have a common view that Le Pen's far right policies are a risk to the Republic.

As traders, the Macron result means that risk is on as a vote for Macron is seen as a vote for stability.

Taking a look at the markets, this is EUR/USD in in initial aftermath:

EUR/USD 5 Minute:

Markets are happy!... BUT. Haven't we been here before? What's the saying about doing the same thing twice and expecting a different result?

So just keep in mind that markets are happy for now, but lets not get too far ahead of ourselves as traders. Our job is to manage risk and the risk of the biggest move is most definitely against the expected Macron second round win with a huge repricing to the short side in EUR/USD.

Do you remember this from our French Election and its Effect on Forex Markets blog?

"There are two rounds of voting and the first round winners don't always end up taking power. Three in the last eight Presidential Elections have been won by the runner up from the first round and storming home."

That doesn't exactly fill me with confidence. Not to mention that fact that neither Macron or Le Pen are members of established parties.

There are just so many unknowns to come!

Taking a wait and see approach as we assess the fallout and head into the second round of voting looks to be the intelligent play if you're holding flat. Are you as risk averse in your trading as I am? Do you see opportunity in the midst of the fallout? Let us know by mentioning @VantageFX on Twitter and sharing your chart.

EUR/USD Daily:

The Daily shows both the horizontal support levels that price is bouncing between, as well as the EUR/USD 4 hourly trend line support level that price really used to kick higher off of. If you follow the Vantage FX blog then you would have liked that one and certainly be sitting pretty right now!

EURUSD soared to a five-month high on the French election results as the two principal candidates (Macron and LePen) advance to the second round. The euro traded higher than expected, but with the betting line leading 90% for a Marcon win in the second run-off, the euro bulls were in command early.

Volumes soared on the EURUSD as both short hedges unwound and investors clamoured for top side exposure. Flow has been completely dominated by EUR and EUR crosses, but with the ECB later this week there may be some apprehension to chase this move higher,

Also, there could be a stutter step that may temper the EURUSD from moving much higher, given the looming second round of elections, and on its face, we could start to see greater risk premiums build.

With the European political risk fading to the background, at least until round two, the markets will quickly pivot to President Trump and tax reform after US President unexpectedly said on Friday at a Treasury Department event that there would be "a big announcement on Wednesday having to do with tax reform."

All in all, a very organised market this morning with liquidity stable from 5 AM Singapore onwards.

USDJPY

EURJPY which traded above 120.40 from 116.95 Friday has pulled USDJPY higher above 110.60, and we've seen real selling out of Tokyo, as the initial view that the move was a bit overdone with risk is still wobbly.

Outside of euro crosses, where volumes are still much higher, the market has been relatively tame.

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EURUSD: With the pair retaining its upside pressure, more strength is expected. Resistance comes in at 1.0750 level with a cut through here opening the door for more upside towards the 1.0800 level. Further up, resistance lies at the 1.0850 level where a break will expose the 1.0900 level. Conversely, support lies at the 1.0650 level where a violation will aim at the 1.0600 level. A break of here will aim at the 1.0550 level. All in all, EURUSD faces further bear threats.

GBPUSD: With the pair continuing to hold on to its corrective recovery following its past week gains, more strength is envisaged in the new week. Support lies at the 1.2750 level where a break will turn attention to the 1.2700 level. Further down, support lies at the 1.2650 level. Below here will set the stage for more weakness towards the 1.2600 level. Conversely, resistance stands at the 1.2850 levels with a turn above here allowing more strength to build up towards the 1.2900 level. Further out, resistance resides at the 1.2950 level followed by the 1.3000 level. On the whole, GBPUSD continues to face upside pressure.

Geopolitical tensions somewhat took a back seat last week. The headlines were filled by news of UK snap election, French election, and to a lesser extent US tax reform. Sterling ended the week as the strongest major currency after boosted by the news of snap election and prospect of a "softer" Brexit. Euro survived the terrorist attack in Paris and French election uncertainties to end as the second strongest one. Dollar ended the week mixed as markets seemed not too convinced by news of Trump administration's tax reform. Meanwhile, Canadian Dollar ended as the weakest one as dragged down by WTI crude oil's sharp fall and break of 50 handle. The result of French election on Sunday will be the first market mover this week.

French election on Sunday watched

The first round of French presidential election on Sunday prompted some risk averse sentiments in the markets. In particular, investors are getting more cautious after the terrorist attack in Paris. German bund yields tumbled to close the week at 0.19%, lowest level for the year. At this point, centrist Emmanuel Macron and far-right Marine Le Pen are still expected to come out of Sunday as the winner for the run-off on May 7. Anti-euro Le Pen seemed to have gotten a jump in support after the Paris attack. But that didn't change the base line scenario of a Macron-Le Pen run off with Macron as winner in that case. It was indeed, the strong momentum of another anti-euro candidate far-left Jean-Luc Melenchon that worried the markets most. A Melenchon-Le Pen run off will drastically raise the voice of Frexit in France and would give the Euro much pressure. Judging from the actions in CAC 40, markets are not too worried about it yet.

CAC 40 rebounded after intra-week dip

CAC 40 dipped to as low as 4980.81 last week but that was mainly following the sharp fall in FTSE. CAC 40 then drew strong support from 55 day EMA and 38.2% retracement of 4733.81 to 5142.81 and rebounded. The news of Paris attack didn't trouble the index much. It's staying in up trend despite loss of upside momentum as seen in daily MACD. For now, outlook of the index remains bullish for another rise through 5142.81 at a later stage.

May's snap election positive for Sterling

The world was shocked by UK Prime Minister Theresa May's u-turn and call for a snap election last week. The notion was then approved by the parliament with overwhelming 522 to 13 votes. FTSE 100 suffered the worst day since Brexit referendum and tumbled sharply after the news. On the other hand, Sterling soared and ended the week as the strongest major currency. May's Conservative is widely expected to win the election in June as the party is having over 20% margin of support over its strongest rivals. Some analysts noted that a win in the election will give May the mandate to pursue her "own" Brexit strategy. And that would mean a softer and more patient approach, in avoidance of "hard Brexit". Markets' repricing of the scenarios for Sterling has sent FTSE sharply lower due to profit projections on exchange rate.

But negative for FTSE

The sharp decline in FTSE clearly indicated topping at 7447.00. This is supported by the strong break of 55 day EMA as well as bearish divergence condition in daily MACD. We also see the rise from 5499.50 as ended and thus expect medium term pull back to 38.2% retracement of 5499.50 to 7447.00 at 6703.05. At this point, we're staying bearish in GBP/USD for medium term. But upside acceleration in GBP/USD, accompanied by downside acceleration in FTSE, could prompt us to change the medium term outlook of GBP/USD.

Markets unconvinced by Trump's tax plan

US stocks, yields and Dollar attempted to rebound last week on news regarding US President Donald Trump's tax reforms. But the developments argue that these markets have merely stabilized rather than reversed. After some comments by Treasury Secretary Steven Mnuchin, the White House finally said on Friday that Trump will release "broad principles and priorities" of the tax overhaul on the coming Wednesday. Trump also said that "the process has begun long ago but it really formally begins on Wednesday." However, it's also reported that the announcement will only contain broad principles and no details. Meanwhile, it's also reported that this round of reform will only be temporary because the so called border-adjusted tax will be excluded. Based on the current reactions, markets will need something more concrete before committing to a rebound.

DJIA stabilized with weak recovery

DJIA is trying to stabilize around 55 day EMA but the momentum for recovery is very weak. At this point, we'd need to see at least a break of 20887.50 resistance before confirming sustainable buying interest. Otherwise, deeper decline is still in favor for the correction from 21169.11 to extend to 38.2% retracement of 17883.56 to 21169.11 at 19914.02.

TNX still heading down

10 year yield dipped to as low as 2.177 but recovered since then. There is no change in the near term bearish outlook as long as 2.391 resistance holds. And TNX's correction from 2.615 would extend to as 38.2% retracement of 1.336 to 2.621 at 2.130. Based on oversold condition as seen in daily chart, strong support should be seen at around 2.13 to bring a rebound. But still, break of 2.391 resistance is needed to indicate completion of the correction. Or, more downside would be seen ahead.

Regarding trading strategy, out EUR/USD short (entered at 1.0580) was stopped out at 1.0680 last week, losing -100 pips. We'll wait for markets reaction to French election before putting on a position.

GBP/JPY Weekly Outlook

GBP/JPY formed a short term bottom at 135.58 last week, just ahead of 135.39 medium term fibonacci level. The development argues that whole consolidation pattern from 148.42 has completed. But we'd prefer to see decisive break of 140.08 resistance to confirm. At this point, we're favoring the bullish case and expect further upside in GBP/JPY ahead.

Initial bias in GBP/JPY is neutral this week for some consolidations. But as long as 138.30 minor support holds, further rally is expected. Decisive break of 140.08 resistance should affirm our bullish view and target 144.77 resistance next. However, break of 138.30 will turn focus back to 135.58 low instead.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. As long as 50% retracement of 122.36 to 148.42 at 135.39 holds, another rising leg would be seen to 38.2% retracement of 195.86 to 122.36 at 150.42 and possibly above. However, firm break of 135.39 will bring retest of 122.36, with prospect of resuming the larger down trend from 195.86.

In the longer term picture, while price actions from 122.36 would develop into a medium term correction, fall from 195.86 is still seen as resuming the down trend from 251.09 (2007 high). Hence, after the correction from 122.36 completes we'd expect another fall through 116.83 low.

EUR/USD surged to 1.0777 last week but failed to sustained gain and retreated. Nonetheless, current development slightly favors the case that corrective rise from 1.0339 is not completed. Hence, another rally is mildly in favor as long as 1.0676 minor support holds.

Initial bias in EUR/USD is neutral this week first. On the upside, above 1.0777 will target 1.0905 and above. But still, choppy rise from 1.0339 is still seen as a correction. Hence, we'll pay attention to topping signal above 1.0905 again, as we'd expect larger down trend to resume later. On the downside, break of 1.0676 minor support will turn intraday bias back to the downside for 1.0569 instead.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

In the long term picture, the down trend from 1.6039 (2008 high) is still in progress and there is no clear sign of completion. We'd expect more downside towards 0.8223 (2000 low) as long as 1.1298 resistance holds. However, firm break of 1.1298 should now confirm long term reversal.

USD/JPY stayed in consolidation above 108.12 temporary low last week. Upside of recovery is limited well below 110.10 support turned resistance so far. Thus, bearish near term outlook is maintained. Fall from 118.65 is expected to extend lower.

Initial bias in USD/JPY is neutral this week first. With 110.10 resistance intact, near term outlook remains bearish. Rise from 98.97 is finished at 118.65 and fall from there would extend. On the downside, break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Sustained break there will pave the way back to 98.97 low. Nonetheless, break of 110.10 will be the first sign of near term bottoming and turn bias back to the upside for 112.19 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. Current development suggests that it's not completed yet and is extending. In case of deeper decline, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD surged to as high as 1.2903 last week but retreated after hitting 100% projection of 1.2108 to 1.2614 from 1.2365 at 1.2871. Further rise is still expected in the pair. But price actions from 1.1946 are viewed as a corrective pattern. Hence we'd expect loss of momentum ahead to limit upside on next rise.

Initial bias in GBP/USD is neutral this week for consolidations. With 1.2614 resistance turned support intact, further rally is expected. Firm break of 100% projection of 1.2108 to 1.2614 from 1.2365 at 1.2871 will target 161.8% retracement at 1.3184. Still, price actions from 1.1946 are seen as a correction. Hence we'd expect strong resistance below 1.3444 to bring larger down trend resumption. On the downside, break of 1.2614 resistance turned support will turn bias back to the downside for 1.2365 support first.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

In the longer term picture, no change in the view that down trend from 2.1161 is still in progress. Current momentum suggests that the down trend will go deeper than originally expected to 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532.