Over the Weekend: French Elections and falling commodities

View on EURUSD, USDJPY and USDINR for the next 1 week

French Elections

Market has factored in a Macron victory (90% chances as per odds). I would ignore the possibility of a surprise La Pen win even though it would be catastrophic for risk assets, as it looks highly unlikely.

We can therefore see two possibilities of either a moderate move up in EURUSD and equity markets post the results or retracement of the moves post actual results. Therefore I would think because of this event the move up in EURUSD and equity markets is limited or actually we might see a correction in the move that has happened so far since the first round.

Falling Commodities

The rise in equity markets since Feb 2016 has been accompanied by a rising crude price. To the extent that charts make it look like that crude recovery was the leading force behind all stock markets globally rising from there. Since Jan 2017 various commodity indices have fallen by 10%, crude oil has fallen by 20% and iron ore in certain market has fallen by 30-40%.

A fall in commodities can be reflective of falling demand in China. The entire reflation trade was based on stable commodity markets which was making the inflation outlook look better in the US, EU, Japan and world over.

If the bearishness in commodity lingers on next week, then I would think that inflation expectations would come lower driving yields lower and EURUSD lower as well. Fall in inflation expectations would ideally drive USDJPY higher but an accompanied fall in equities and yields, can drive safe haven demand into JPY driving the pair lower, which would be my dominant expectation.

Consequently USDINR could remain well bid as EM currencies come under pressure against the USD driving the pair towards 64.60 next week.

Views  

EURUSD : Sell EURUSD at possible upticks to 1.0975 and 1.1045 with a stop above 1.1115 for a move to 1.0830.

USDJPY: Sell USDJPY at 112.85 and 113.35 with a stop above 113.85 for a move to 111.20.

USDINR: Carry overnight long USDINR for at 64.33 for a move to 64.55-64.60 levels next week.