The bad news out of the US continue to accumulate. After poor retail sales and inflation in withdrawal the past week, we keep an index of the real estate market in decline and the main manufacturing index US, the Empire State, who lost more than 10 points in April.
The economy caught up with the Dollar that benefits from it as always (a safe haven in case of mayhem) of the discourse does in war of the USA who are apparently on the verge of bombing North Korea because of its test-firing ballistic which are not popular at all in South Korea and Japan.
The Dollar Index threatens to break the threshold very, very symbolic of 100. A break would open quickly the way of the 99 on the DXY (Dollar Index) and, therefore, of 1.08 EUR/USD. On the other hand, to continue to talk to key levels, it seems that 1.05 is still a support interesting. It is probably time to play the channel 1.05 – 1.10, in which the FED and the ECB seem happy to maintain the exchange rate.
Above 1, EUR/USD is in favour of exports to US and as long as we don’t go above 1.15, the great prevent the Euro-Zone are satisfied.
But this week, it is especially the first round of the French presidential election that will attract the markets ‘ attention. Volatility on the Euro is at the highest since the Brexit and the majority of this volatility is against the Yen for the time being. Clearly, the Euro will suffer if Marine le Pen manages to drag in the second round. But the magnitude of the decline will depend on his score (it will be that it achieves the best score). On the other hand, we believe that Marine le Pen will not be elected in the second round, regardless of his opponent, and that the decline of the Euro will ultimately be short-lived.
The Euro could also suffer if Mélenchon goes in the second round. In fact, even if we think that the threat of an exit from the EU and the Euro Zone will be sufficient to reform Europe in the right direction, it is not excluded that the EU broke out completely in the wake of an exit of France and the United Kingdom. We believe, therefore, that even if the Euro were to react negatively in the face of Mélenchon and Le Pen (and positively in the face of the candidate system that are Macron and Fillon), the Euro will bounce back because it is difficult to do worse than Trump… on the other hand, the investment plan of Mélenchon, could boost growth, and in the end cause on the Euro the same enthusiasm that Trump has had on the Dollar… Difficult to be certain of anything, but this is what we keep in mind. A duel between Mélenchon and le Pen could weigh down the Euro. But again, the decline should be short-lived because in this duel, Mélenchon should take it and it will then be necessary to wait many long months before you know if a referendum on membership of the EU will be put in place.
Thus mistrust, there is a risk of increase of the Euro in the beginning of the week and drop in before the Weekend with the potential for a gap downward to the opening on the Monday before that the single currency did resume without that parity is actually threatened.
Keep an eye on the indices of activity in manufacturing of both sides of the Atlantic and inflation in the Euro Area.
We prefer to play the rise this week, but to quickly take profits before the close.
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