The week ahead: eyes on EUR/USD, risk-on tone to persist post French election Round one?

The week has started out with a mixed outlook given the French elections result hosting the expected outcome that comes as a coin with two sides and on a week with plenty of risk events ahead. 

While the most likely and relatively market-friendly French presidential outcome of Macron facing Le Pen has occurred, markets can't count a Macron victory given how close the polls are coming through and there still being plenty of time for Le Pen to rally up support for her anti-immigration and euro campaign until round two on May 7th. 

However, with Macron seemingly to have received the most votes so far adds a positive risk tone for the start of the week at least and market sentiment will develop as Europe and America get back on the scene, possibly picking up the risk-on baton and driving the euro higher still. However, markets will not wish to get too keenly positioned on what is still an open contest and while the ECB is just around the corner.

"We suspect the gains will be limited because this is the result that was anticipated, and ahead of the ECB meeting where Draghi is likely to push against ideas that a tapering or a rate hike is warranted," explained analysts at Brown Brothers Harriman, adding,  "it may take a break of the $1.0570-$1.0600 to signal that a top is in place."

• French elections: who is likely to win the second round? - Nomura
• French election round 1: Outcome to add positive risk tone for the week ahead - Westpac

For the week ahead, besides the ECB, we have a bit of all sorts from around the G7's to keep the market busy with a particular focus on US durable goods and the first estimate of US GDP for Q1. 

"With spending data pointing to slowing economic growth, we expect Q1 GDP growth to have slowed to 1.0% q-o-q saar from 2.1% in Q4," explained analysts at Nomura, adding, "some, including the FOMC, have argued for looking through this weakness in Q1, blaming residual seasonality and other technical reasons. Yet, our analysis indicates that residual seasonality which previously tended to lower Q1 GDP growth has been mostly reduced after methodological changes to seasonal adjustment of the source data of the GDP by the BEA" 

The euro area will have Germon IFO, French business climate and confidence, UK GDP and EU CPI. For Asia, Japanese CPI will take up some focus while for the antipodeans, Australia's CPI will be a major event and a firm report could help support the Aussie that has otherwise been caught in a range between 0.7500-0.7700. 

Where now for the EUR/USD after the first round of French elections? 

EUR/USD is bid while above the key 1.0830 support with eyes on closes above 1.0880 and the 200-d smoothed sma at 1.0879. 1.0950 is a key resistance area as being the early Aug 2016 lows and mid-October 2016 levels as well. To the downside, a close of the gap and a break of the 200 ma at 1.0770  on the daily sticks guard the psuchlogical1.0550; ahead of 1.0400 and then, the 2017 low at 1.0335/40 on the wide.

Martin Armstrong: A Le Pen victory would be a soft landing for the euro!