The Trade After the Fear Trade

The euro peaked early and faded as we anticipated in yesterday's IMT; we look at what's next. The euro was the top performer Monday while the Japanese yen lagged. Australia and New Zealand are on holiday Tuesday.There are currently 8 Premium Trades in progress; 4 in FX, 2 in indices and 2 in commodities.

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The question we're asking ourselves now is whether the French election result was a one-day event or the start of something more durable. The close in EUR/USD was 1.0866, that's the best since November.

What's worrisome is that all the euro charts have eaten into the opening gaps. That's a technical red flag. It suggests a quick squeeze or a fast money trade rather than a sea change in sentiment. At the same time, some consolidation is normal.

Ultimately, the market is more political than it's been in a generation. At the moment, the political temperature is cooling off but it can shift quickly. Ignoring politics, the eurozone economy is showing some bright spots and EUR/USD is at a deeply depressed level. Like sterling, it won't take much to get it moving to the upside. Will the ECB and Eurozone CPI later magnify or break momentum?

The election is also a reminder of the factor that fear plays in trading. Markets are an amazing method of price discovery but add a bit of fear into the equation and prices quickly disconnect from reality. The current era of political shifts will lead to many bouts of fear and not all of them will be unjustified but if we look back at Brexit, Trump and the French election, the fears have been exaggerated at times in each case.