• EUR/USD is trading near 1.0900 after gapping higher after French President Macron’s solid first-round Presidential election performance.
• The pair is also being supported as Eurozone yields rally, though risk-off flows and upcoming US data/Fed speak are risks.

Pro-EU French President Emmanuel Macron’s solid performance in the first round of the French Presidential election on Sunday saw EUR/USD gap higher at the reopening of trade this week. EUR/USD opened at around 1.0920 and even went as high as the 1.0930s during European morning trade, but has since fallen back to test the 1.0900 mark, where it one again is eyeing session lows in the 1.0880 area.

At current levels, EUR/USD still trades about 0.25% higher on the day, though gains at highs earlier in the session were more than 0.5%. Macron’s first-round performance a tad better than expected and secured him a place in the runoff against his more anti-EU rival Marine Le Pen in the final runoff on 24 April. But polling between Macron and Le Pen remains very tight, meaning political uncertainty will continue to weigh on the euro in the coming weeks.

Elsewhere, Eurozone yields are sharply up on Monday (German 10-year +8bps), which has resulted in a narrowing of the US yields advantage, another factor offering support to the pair. But a barrage of upcoming Fed speak over the next few days and the release of US inflation figures on Tuesday and Wednesday could easily see this reverse. Indeed, against the backdrop of ongoing concerns over the Russo-Ukraine war and now lockdowns in China, both of which are dampening broad market sentiment, USD risks still seem tilted higher.

EUR/USD bears will be eyeing a retest of last week’s lows in the 1.0830s ahead of a potential test of annual lows at 1.0806. Some longer-term bears have set their sights on the 2020 lows in the mid-1.0600s. Unless the ECB surprises this week with another hawkish shift in its QE and rate guidance (not the market’s base case), things could well be headed that way in the coming weeks.