The euro has paused after the initial post-vote surge - Societe Generale

Kit Juckes, an economist at Societe Generale notes that the euro has paused after the initial post-vote surge, but global markets are basking in risk-on sunshine. 

Key quotes

"With French political risk significantly reduced (even if there's still a two-week second round campaign to negotiate), an improving global economy, steadier oil prices, and most of all, range-bound US yields and a lack of fear of rapid Fed tightening, investors see few demons and are off in search of yield. In FX the first twenty-four hours since the French vote have seen higher-yielding European currencies thrive most, with the TRY, HUF, PLN and CZK in the box seats, while the yen has maintained its position at the bottom of the pile. That speaks volumes for the mood. We like shorting USD/SEK here, and GBP/SEK too, for that matter."

"There are some exceptions. USD/CAD is again threatening to break out higher after President Trump announced tariffs on US softwood lumber imports from Canada, and threatened them for dairy products too. The Canadian dollar is cheap, but the economy's hardly charging forward and this latest move has a strong chance of seeing a break higher towards USD/CAD 1.40 before the CAD does, finally, become a really attractive long-term buy"

"US/German real yield differentials are back at the same levels that accompanied the euro's spike to close to 1.09 in late-March. I still think the onus is on the Bund market to lead the way if we are to see a break higher. And while that seems highly likely in due course, progress could be delayed by residual political uncertainty. Today, the main event for European investors is the ECB bank lending survey, which will probably reflect the current buoyant economic mood. Maybe that drives yields and the euro up."

"In the US, the main economic data comes in the form of new home sales, which are likely to pause after February's jump. Steadier oil prices and the prospect of a cut in corporation tax are dollar-friendly - and risk-friendly for that matter - and may argue for EUR/JPY and indeed for USD/JPY to make gains from here. But if something comes along to shake the US bond market and get yields back up sharply, it somehow doesn't seem likely that it will be today's data."

"Meanwhile, there is still the Friday deadline for the US Congress to pass a spending bill funding the government through September or risk a government shutdown, but Trump has reportedly backed down from his insistence on funding the Mexican border wall in the bill."