EUR/JPY braces for French election 1st round
James Chen, CMT April 21, 2017 12:52 PM
One of the key potential market impacts to watch for after the votes are counted will be the effect on EUR/JPY. This currency pair combines the shared currency of the euro area, which potentially stands to lose or gain the most from the election outcome, along with the safe-haven yen, which often acts as a barometer of market risk perceptions.
The latest poll averages for the first round of the election continue to show a close race. Centrist Emmanuel Macron, who is considered pro-EU and pro-euro, has extended his persistent lead to near 24%. Far-right Marine Le Pen, who is seen as the candidate most aggressively opposed to French membership in the EU, is the second most favored to advance to the final round at around 22%. Conservative Francois Fillon and far-left Jean-Luc Melenchon, another staunch EU critic, are nearly tied at around 19% each.
On Thursday night, an alleged terror attack that resulted in the death of a French police officer on the Champs-Elysees in Paris led Marine Le Pen to call for all terror suspects to be expelled from France. This last-minute tragic event before Sunday’s vote could potentially make a significant impact on Le Pen’s chances.
1st Round Scenarios
There are six possible scenarios for the advancement of two candidates among the four main rivals. Currently, the most likely scenario is that Macron and Le Pen advance. Since this is what polls are now showing, the impact of this outcome on the euro may well be priced-in already and therefore muted, but could also have somewhat of a negative effect. In the event of a Macron/Fillon win, the euro impact would likely be significantly positive, as Le Pen’s and Melenchon’s EU threats will have been neutralized. Macron/Melenchon would likely have a similar effect with the Macron/Le Pen scenario. Le Pen/Fillon could have somewhat of a negative euro impact in the absence of the pro-EU Macron. But the most negative outcome of all for the euro would likely be Le Pen/Melenchon, both anti-EU candidates, as the future of French membership in the EU would then be severely jeopardized.
In the midst of all this speculation, EUR/JPY is likely to be impacted significantly. The past month has seen the currency pair fall sharply, but this week has seen a modest rebound. Overall, EUR/JPY is entrenched in a long-term downtrend. From a technical perspective, the pair has just turned down after retesting a key uptrend line that was broken down early last week. After Sunday’s first-round election, any negative outcome for the euro may be combined with a boost for the safe-haven yen, which could pressure EUR/JPY back down towards 115.00 support and lower. To the upside, a positive outcome for the euro could push EUR/JPY towards intermediate resistance around the 118.00 level.
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. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.