The main focus next week will be on the French Presidential election and the euro. Incoming polls will have a direct impact on how the euro trades and will overshadow the April PMI reports, which are normally the most important pieces of data released from the Eurozone each month. Even after Friday’s disappointing U.S. economic reports, the euro ended the day lower versus the U.S. dollar. We expect the currency to trade with a heavy bias going into the election as the recent terrorist attacks boost the popularity of far right leader Marine Le Pen. The polls have been tightening ahead of the first round vote. She is expected to do well but fall behind in the second round. If Le Pen gains more votes than Macron, the EUR/USD will make a run for 1.05. Even if she has fewer votes but strong support, investors will immediately worry about a Trump style victory by a candidate who is anti-immigration and has called for a EU referendum within 6 months of her victory. While the latest German ZEW survey showed an uptick in investor confidence, if taken today we believe sentiment will be weaker. The path of least resistance for the euro should be lower next week ahead of the French election with the single currency underperforming most of its peers.

Technically, the EUR/USD is very weak, having traded below the 100-day SMA. It is still holding below trendline support but we think that support will give, paving the way for EUR/USD to fall to 1.05. In order to negate the downtrend, the currency pair needs to bounce back above 1.07.