The French election – still anyone’s game

“Even though Macron’s lead in the first round of the French elections has buoyed markets, traders are buying USD currency pairs” says Jameel Ahmad. According to Ahmad, prior to the initial round of the elections, 69% of FXTM’s traders were selling the Euro with an Average Weighted Price of 1.06466. They also noticed long exposure on USD pairs before and after the elections, which is a sign that traders were seeking a safe haven position – despite Macron’s popularity. Ahmad says “the reason for this could be that, although Macron has the lead, traders are not discounting the fact that he is a relative neophyte on the political scene and would be France’s youngest ever President”.

As the international community recovers from the shock of the Brexit vote and Donald Trump taking the reins in the Oval Office, pundits have been cautious about taking a stance from the polls in the French election. This time, however, the polls were on the mark. Emmanuel Macron and Marine Le Pen are going to battle it out for the podium. Macron’s promise to lower corporate taxes and his intention to stay within the EU, has given the Euro a boost; global stock markets have also rallied, with European bank shares rising to their highest levels since December 2015. Another indicator that the markets believe Macron is good for the Presidency is the Volatility Index (VIX), which plummeted after the news that Macron is a contender.

“As predicted,” Ahmad says, “the markets reacted favourably to Macron’s lead. Le Pen is trailing by 2.3%, but this, by no means, discounts her as a contender. If she does well in the new round of polls leading up to the election on 7 May, it could precipitate a fresh round of market jitters.” Le Pen wants to renegotiate the terms of France’s membership in the EU. Her agenda is to change the Union into a loose cooperative of countries, to eliminate the border-free area, and to reduce the reach of the EU budget rules. She would also call a Referendum on EU membership at the end of her first six months as President and does not rule out a “Frexit.” “This makes currency traders nervous,” says Ahmad.

Some similarities can be drawn from the US elections, where final polls showed Clinton had a 2% lead, although Trump eventually won with a 3% lead. In France, the polls showed that Macron would win the first round with a 1.5% lead (an average of the polling organizations) and he won by 2.3%. These margins are by no means landslides and the scales could easily tip in Le Pen’s favour.

Regardless of how the French people vote on 7 May, the outcome will surely play out in the markets. Results from the first round clearly indicate that a Macron Presidency augurs better for the French and European economies and political landscape. If Le Pen gets the nod, then her economic and political agendas are likely to set the Euro on a course of volatility. Ahmad says, “A Frexit could set the scene for a weakened European Union. Euroscepticism is growing on the continent and since most European countries allow for referendums in their constitutions, other exits cannot be ruled out. We cannot forget that, after the Brexit vote the foreign ministers of Germany, Italy, Belgium, France, Holland and Luxembourg, issued a joint statement declaring that they recognized a discontent with the functioning of the EU. The ‘exit’ agenda is by no means over, all of the citizens of Europe will be witnessing significant changes in the next five years; it will be an interesting journey.”

Jameel Ahmad, Vice President of Corporate Development and Market Research for FXTM

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