Le Pen gains in the polls sees fresh EUR selling

Focus turns to Fed minutes; will Yellen match the hawkish tones from last week’s testimony?

Much of the European session was taken up by the political concerns over Le Pen’s gains in the polls drawing more investors away from France and into the safety zone that is Germany. Along with the healthy economic data coming out of Europe’s leading light, German paper has been in the spotlight of late, with this accelerating over the last 24-48 hours and pulling yields lower still. 2Yr Schatz got to -0.92%, while the 10yr rate hit 0.25%. More significantly, the spreads with OAT’s have widened to levels last seen in 2012, accompanying a fresh exodus from the EUR which has seen the lead spot rate taking out 1.0500 – albeit briefly – while EUR/GBP has tested 0.8400 and EUR/JPY to below 119.00. Late in the day however, we heard news that centrist Bayrou was to pull out of the race and back Macron to give the single unit some near term relief.

Later on this evening, we may see some further pressure on the EUR/USD rate as the USD perspective is back on focus as traders turn to the Fed minutes. Specifically, the market will be looking for some asymmetry with the recent Yellen testimony, where the Fed chair’s tone was a little more hawkish than the Fed statement 3 weeks ago. USD/JPY will be the focal point as the BoJ maintain their accommodative stance, and are happy to advocate this at every opportunity. The dip in UST yields pulled the USD rate below 113.00, but we ran into buyers here to settle back in the mid 113.00’s into the London close.

For GBP, it was another weak piece of data which had to be negotiated. The second reading of Q4 GDP saw a modest revision from 0.6% to 0.7% but this was significantly tempered by the fall in business investment of 1%. However, EUR/GBP losses have now taken out some key support at 0.8450, and whilst we found some support ahead of 0.8400, the resilient tone in Cable is also telling as bids creep higher through 1.2400 – 1.2424 today’s session low.

Not too much of note in the risk/commodity currencies, but the buoyant tone in USD/CAD saw the intra day market spark another move through 1.3200 asDec retail sales fell by 0.5%. The move lacks conviction as yet, but this can be said of most of the G10 pairings. AUD/USD spiked above 0.7700 again, while NZD/USD trades sideways, staying on the back-foot against the AUD in the cross rate.