CIBC

FX Flows

Emmanuel Macron’s win was historic, first president to win a re-election in two decades as well as first to win while controlling the government. His victory was decisive but EUR$ price action was somewhat disappointing. Ended New York last Friday at 1.0790, pre-opened higher then paid at 1.0852 which was the official open and drifted lower, low volume given that it is ANZAC Day. Support at 1.0758, low of April 14. Note that there are close to €3.8bn of 1.0800 strikes due this week.

Valdis Dombrovskis, the European Commission EVP told The Times that EU is preparing smart sanctions against Russian oil imports, designed to minimise economic damage to the European economy.

Iron ore futures in Singapore fells more than 11% at the open, according to Bloomberg it was due to a story over that the weekend that Chinese NDRC told the steel industry to adhere to green and low-carbon development. Thus cutting of output would mean lower demand for raw materials. US equity futures weak at the open, this put some pressure on the AU$. The pair extended losses when commodity futures kicked off, industrial metals weak. This push AU$ towards 0.7210. Another reason is the unwinding of short €AU$, the cross attempting to take out the 50-day SMA 1.4886. Downside AU$ target is 0.7165, previous low on March 15. Strong support seen at 0.7100. About A$800mio of 0.7350 matures today, don’t think that is a threat for now.

Market will be keeping a close eye on the Q1 CPI out on Wednesday April 27. Forecasts for another robust set of numbers, putting pressure on RBA to act. Most economists see RBA hiking in June, there was one forecaster calling for hike in May which we doubt so because of elections. Furthermore, there is another risk, weaker growth in China due to continued lockdowns.

Oil futures opened lower after Libya said to resume oil output from the closed oil fields within days. $CAD was little higher, not a great deal. Corporate sell orders scattered on the topside. Canadian monthly GDP out this Friday, first quarter will definitely be much stronger than anyone had expected at the start of the year as Omicron cases were climbing. The only questionremaining is; by how much? Looking into the second half, we expect that the squeeze on household incomes from sky-high inflation and interest rates moving higher will slow the economy more than the Bank of Canada is currently forecasting. That could bring a pause in the current hiking cycle towards the lower-end of the Bank’s neutral band.

$YEN traded higher despite weaker UST yields, constant buying into the fix and the pair stayed firm. No sound from the Japanese officials, there was a report that a senior Japanese MoF official on Saturday denied a media report that Japan and the United States discussed coordinated currency intervention to stem further YEN falls. Think we might see some buying from speculators towards 129-handle, then towards 130-level. Firm support at 127.00.

The Times revealed that the Sue Gray report on the lockdown parties in Downing Street is so damning that senior officials believe it could leave PM Boris Johnson with no choice but to resign. The report, understood to be highly critical of the PM, has been delayed until Scotland Yard has completed its own investigations. According to The Times, Johnson attended at least 6 of the 12 events.

Citi

European Open

EUR failed to hold early gains after exit polls pointed to a Macron victory in the French election, which was later confirmed, with better EUR selling emerging via platforms in early trade. China growth slowdown narrative has hijacked market focus, replacing the Fed as officials enter blackout period. CNH slips another 0.8% following a consensus fix, which markets took as a lack of concern around the speed of depreciation (after biggest drop since 2015 last week). CNH (-0.8%) is now on track for the largest one-day selloff since 2020. China-sensitive FX is in focus, AUD over 1% lower, while USDAsia has jumped, led by KRW, and commodities under pressure.

In the wake of the French election, EUR looks ahead to German IFO data before comments from ECB’s Panetta, a known dove and executive board member, scheduled for after the European close. With Fed speakers observing blackout period, USD focus turns to regional activity readings. CAD will watch BoC Governor Macklem appearance in parliament. TWD expects another stellar industrial production release. MXN economic activity release is due later.