A Big Week For The Euro Awaits: Beware The Gap-Risk

On Sunday, we’ll begin to hear the results from the first round of French elections with polls beginning to report at around 8PM in Paris (2PM in New York). This is a few hours ahead of market open, so be extremely careful with gap risk over the weekend with any asset attached to the Euro. This can include metals such as Gold, as any uptick in geopolitical risk can bring with it macroeconomic implications.

But even after markets wade through the first round of French elections, a pivotal European Central Bank meeting is on the calendar for Thursday morning and many are looking for signs or clues that the ECB may be nearing readiness to start tapering QE. So, next week presents a heavy dose of potential for volatility around the European economy. Below, we look into three of the more interesting Euro-markets as we head into next week.

EUR/USD (Optimal for Euro-strength strategies)

This will likely be the focal point on the Sunday open as markets and investors attempt to gauge risk around those French election results. The general perception is that if either Jean-Luc Melanchon or Marine Le Pen make it into the second round, the Euro will face some element of weakness on the basis of enhanced political risk in Europe. Both candidates present outlier views, one from the far right and the other from the far left; but with either taking a place in the second round, markets will likely remain unsettled in the near-term.

However, if we get a second round with Emmanuel Macron and Francois Fillon, we’re probably going to see a dash of Euro-strength as that political risk abates before we head into the ECB meeting later in the week, on Thursday morning.

EUR/USD is continuing to see some element of support around the 1.0700 figure, which is the 50% retracement of the move from the February lows up to the March highs; and there’s a bullish trend-line that can be found by connecting the low in January to the low in March (shown in red below). Given that we’re coming off of a very recent higher-high (3/27) and a very recent higher-low (4/10); and EUR/USD could have the makings of a bullish-move in its future. Key will be respect of that prior low set on April 10th around 1.0570.

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