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Plus ça change, as Macron meets Le Pen in final round

It looks set to be a positive start for European markets this morning with the euro also gaining a boost from the first round result of the French Presidential vote.

At the end of last week there was growing optimism that political outsider and ex investment banker Emmanuel Macron would make it through to the final vote in May. The only unknown was as to who he would face in the run off.

In the wake of last week’s terrorist attack in Paris this confidence took a little bit of a knock but it would appear that concern was misplaced as the late surge of left winger and the other anti-euro candidate Jean-Luc Melenchon ran out of steam just short of the line, and as expected Marine Le Pen, joined Macron at the head of the polling.

In a boost for the opinion pollsters their projections came in pretty much as expected, and this two way face off is now expected to result in a Macron win in two weeks’ time.

While this is likely to be greeted with relief this morning, for markets this was always the least bad option, with most expecting Mr Macron to become President in two weeks’ time as the other candidates endorse him over Marine Le Pen.

What this won’t do is change the political schism that has opened up in France or change the sense of grievance amongst large sections of the French population, nearly 40% of whom voted for a Eurosceptic candidate, while Mrs Le Pen could well also put in a strong showing in the second round.

This is likely to mean that Mr Macron won’t be able to deliver anything like what he promised in his manifesto, given he doesn’t have any party machinery or political support in the French parliament, and probably won’t get it either.

For all his market and EU friendly rhetoric Emmanuel Macron will face the same problems previous French Presidents have faced, which means he will have to reach out across the political divide. This lack of support is likely to make him a lame duck President, only able to affect minor tweaks or changes.

With markets breathing a collective sigh of relief attention will turn back to economic data with the latest German IFO business survey which in the wake of last week’s decent manufacturing and services PMI’s from both France and Germany is likely to come in fairly strong.

A reading of 112.4, is expected up from 112.3 in March, and reinforcing a strong start to the year for both the German and French economies.

Also on the agenda this week will be the latest European Central Bank rate meeting, as well as the first readings of UK and US Q1 GDP, both of which are expected to be softer than the Q4 numbers.

No changes are expected to ECB policy though you can be sure that the recent recovery in the EU economy will open up further debate about a possible tapering of monetary policy before year end, particularly with German elections in September.

EURUSD – the weekend move through the March peaks at 1.0905 and has also taken the euro above its 200 day MA at 1.0840 and back to levels seen in November last year, with 1.1000 the next key resistance. The uptrend from the January lows remains intact while above the 1.0600 level.

GBPUSD – the pound appears to be finding support around the 1.2780 level but has thus far struggled to retest last week’s highs above 1.2900. Upside momentum towards 1.3000 and 1.3300 remains intact while above the 200 day MA as well as the break of its triangular consolidation at 1.2600.

EURGBP – key support currently lies just above the lows last week and last December at the 0.8300 level. The move over the weekend has seen the euro push up through the 0.8500 level, however it could struggle near the 0.8570 level, where the 50/100 and 200 day MA’s converge.

USDJPY – the US dollar has surged higher over the weekend gapping back through the 110.20 area and opening up a return to the early April peaks at 111.60. Last week’s peak at 109.40/50 is likely to act as support in the short term.

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