EUR/USD ahead of U.S. NFP and French election

EUR/USD outperforms its major counterparts even as Fed Fund Futures now highlight a greater than 70% probability for a June rate-hike, and the pair may continue to appreciate over the coming days as market attention turns to the final round of the French presidential election on May 7.

With that said, another lackluster U.S. Non-Farm Payrolls (NFP) report may fuel the near-term advance in EUR/USD especially as the exchange rate breaks out of a near-term range, and a Macron victory may ultimately heighten the appeal of the single-currency as it eases concerns of a euro-area breakup. At the same time, the European Central Bank’s (ECB) effort to ward off a taper tantrum may do little to weaken the Euro as the Governing Council preserves the December deadline for its quantitate easing (QE) program, and the recent developments suggest there’s a potential shift in market behavior as the EUR/USD exchange rate clears the downward trend from 2016 and holds above the 200-Day SMA (1.0838) for the first time since October.

• The broader outlook for EUR/USD has become less bearish, with the pair still trading above the former-trendline resistance, but the Relative Strength Index (RSI) appears to be deviating with price as it struggles to push into overbought territory.
• In turn, the pair stands at risk for a near-term pullback as the advance following the first round of the French election appears to be getting exhausted, with the first downside region of interest coming in around 1.0780 (100% expansion) to 1.0790 (38.2% expansion).
• Nevertheless, the shift in the longer-term trend may continue to take shape as the price & the RSI extend the bullish trends from late-2016, with the topside targets remain in focus for the days ahead as the pair searches for resistance; first hurdle comes in around 1.1020 (50% expansion) followed by the Fibonacci overlap around 1.1140 (23.6% expansion) to 1.1160 (38.2% expansion).

The Australian dollar extends the decline from earlier this week as Reserve Bank of Australia (RBA) Governor Philip Lowe warns the rise in household indebtedness ‘has made the economy less resilient to future shocks,’ and the AUD/USD exchange rate may continue to give back the advance from earlier this year as the central bank appears to be in no rush to lift the official cash rate from the record-low of 1.50%. Governor Lowe added that ‘interest rates in Australia will increase’ as the economy continues to transition from the mining boom, but quickly went onto say that ‘this is not a signal about the near-term outlook for interest rates in Australia but rather a reminder that over time we could expect interest rates to rise.’ The fresh remarks suggests the RBA will continue to tame interest-rate expectations for the foreseeable future, and the bearish seasonal bias may largely pan out over the coming days as aussie-dollar carves a bearish formation following the failed test of the November high (0.7778).

• Keep in mind AUD/USD continues to track the 2016-range, with the Fibonacci overlap around 0.7730 (38.2% retracement) to 0.7770 (61.8% expansion) still offering resistance, and the downside targets remain in focus ahead of the RBA’s quarterly Statement on Monetary Policy as price & the Relative Strength Index (RSI) preserve the bearish formations carried over from earlier this year; will keep a close eye on the oscillator as it approaches oversold territory, with a break below 30 raising the risk for a further decline in the exchange rate as the downward momentum gathers pace.
• The fresh forecasts coming out the RBA may do little do alter the monetary policy outlook as Governor Lowe anticipates ‘economic growth to pick up gradually and average around 3 per cent or so over the next few years,’ and the aussie-dollar exchange may continue to carve a series of lower highs & lows over the days ahead should the central bank show a greater willingness to retain the current stance throughout 2017.
• With that said, AUD/USD has come up against the downside hurdle around 0.7390 (38.2% retracement) to 0.7420 (61.8% retracement), with a break/close below the Fibonacci overlap opening up the next area of interest around 0.7330 (50% retracement) to 0.7350 (38.2% expansion), but the pair may stage a near-term rebound going to the end of the week as it comes up against channel support; nevertheless, will continue to look for opportunities to sell bounces in AUD/USD as the near-term outlook remains tilted to the downside.