FxWirePro: Euro declines despite Macron win as investors shift focus

Europe’s single currency declined after a small initial rally. As it became clear that the independent, pro-EU candidate Emmanuel Macron is set to become the next French President beating the euro-skeptic Front National leader Marine Le Pen, euro opened higher above 1.10, at 1.1016. It moved higher to reach 1.1021 against the dollar and has been in decline since. The euro is currently trading at 1.0965 against the dollar.

The following reasons are likely to be the force behind euro’s decline despite a Macron victory,

• The levels of uncertainty were much higher in the first round of the election that was held on 23rd April. At that point, investors were not sure to whether to trust the polls or not, especially after last year’s Brexit and Trump election. As it turned out that polls were correct in the round one, the outcome of the round two was widely expected and priced in.
• Investors were clearly positioning for a Macron victory in the round two and early birds are likely to be feasting on whatever profits they earned.
• As the political uncertainties in Europe declined to the lowest point in months with the end of the French election, investors are turning their focus away from the election uncertainties to economic policies and rate differentials between the Eurozone and the United States. With Federal Reserve well ahead of the curve, investors are reluctant to short the dollar.

With the end of the French election, we suspect the economy and monetary policies to be the key forces driving the single currency once again.