Euro still resilient despite looming French election risk
James Chen, CMT April 20, 2017 1:53 PM
Macron is the only candidate of the four current front-runners to embrace the EU/euro without prominently calling for reforms. Far-right Le Pen is the strongest advocate for France leaving both the EU (Frexit) and euro. Far-left Melenchon would also support Frexit if sweeping EU reforms are not implemented. And while conservative Francois Fillon does not advocate an end to EU membership, he has promised reforms to both EU policies and the euro.
Despite Macron’s modest but sustained dominance in French polls, the race could realistically go to any one of the candidates. Recent polls of voters have shown an exceptionally tight race, with each of the four front-runners fluctuating not far from 20%. Most recent national poll averages have Emmanuel Macron around 23%, Marine Le Pen around 22%, and both Francois Fillon and Jean-Luc Melenchon fighting for third-place around 19%. Furthermore, there is still a sizable contingent of undecided voters, as well as many who could easily change their votes.
When such tight polling conditions so close to the election are combined with the fact that polls have been notoriously inaccurate in recent times (e.g., last year’s UK Brexit referendum and US presidential election), a clear case can be made that it remains anyone’s election to win.
After the first round of the election, the two leading contenders will move onto the second round, set for May 7th. This is provided, of course, that none of the candidates secures 50% of the first-round votes, which has never occurred in French elections. With such a close race among the four front-runners currently, this is even less likely to happen.
In the run-up to this weekend’s first round, the euro has recently exhibited resilience against both the stumbling US dollar and Japanese yen. A key currency pair to watch amid the election risks in the days and weeks ahead will be EUR/JPY. In the event of better results than expected from either Le Pen or Melenchon, EUR/JPY could be doubly pressured by both a drop in the threatened euro as well as a boost for the safe-haven yen as a result of heightened market risk perceptions. In the slightly more likely event that Macron, or to a lesser extent, Fillon, move significantly ahead, the euro is likely to experience a further relief rally while the yen could drop on decreased safe-haven demand. This could result in a pronounced boost for EUR/JPY as European markets potentially breathe a collective sigh of relief.
More From James Chen, CMT
- Macron/Le Pen win French election first round – euro surges April 23, 2017 7:46 PM
- EUR/JPY braces for French election 1st round April 21, 2017 12:52 PM
- See More
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. GAIN Capital Group, LLC is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission (CFTC)and is a member of the National Futures Association (NFA # 0339826) in the US, GAIN Capital UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, GAIN Capital Australia Pty. Ltd is regulated by the Australian Securities and Investment Commission (ASIC) in Australia, and GAIN Capital Japan Co. Ltd is authorised and regulated by the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options.