It was readily apparent that EURUSD was in full “sell the news” mode by late Sunday evening.
That’s not exactly surprising as most analysts were out suggesting that most of the upside had been baked in following the first round of the French elections. But what people say and what they do are often two very different things, and as of last Tuesday, asset managers were the most long the single currency in at least a decade and specs had cut their shorts to damn near even. So I think it’s probably fair to say that someone, somewhere was expecting a rally.
Well, here’s how things have gone for EURUSD since Macron vanquished Le Pen:
Clearly, profit taking dominated the price action post Macron-win confirmation. “Macro and leveraged names are main sellers,” traders told Bloomberg, adding that “interbank accounts are firm dip-buyers with orders at 1.0940-50, 1.0900-15 and near 1.0850.”
Around 5:15 EST, we dropped to 1.0940.
Here’s Bloomberg again:
The euro succumbed to selling pressure after climbing above the psychologically-important $1.10 level following Emmanuel Macron’s victory in the French election, as investors booked profits on part of their long exposure in the cash market.
The common currency rose to $1.1023 during early Asia trading, further filling the gap following the U.S. elections in November. With that move taking it more than 2.7 percent higher since the first round of the French elections, fast-money names unwound part of their longs, according to foreign-exchange traders in Europe. That saw the currency fall as much as 0.6 percent to $1.0936 in the European morning
And finally, here’s a bit of useful Monday morning color from SocGen’s Kit Juckes who notes that yield differentials probably need to narrow before the market can move much further.
The Euro went up a bit, down a bit and ended pretty much where it was last week. It faces two short-term challenges. The first is that the FX market has moved a good way further in recent days than the bond market, with the Treasury/Yield spread not very different from where it was when EUR/USD was under 1.08. Bunds need to catch up with the currency. The second hurdle is positioning. CFTC data show the smallest speculative Euro short in 3 years. That’s still a short position, of course, so much more of a short-term hurdle than a reason for a deep correction to lighten positions. A period of choppy trading is likely for now, but we do still expect EUR/USD to move higher in due course. We also still like EUR/JPY *(more than EUR/USD) and EUR/GBP longs. Finally, against a risk and Europe-friendly backdrop, SEK, HUF and PLN are all going to attract inflows.