Sunday saw the results from the first round of the French presidential election. There has never been a majority victory in the history of French elections after the first round. We now move on to the second and final round of voting on the 7th May. It will now be between the top two candidates Emmanuel Macron and Marine Le Pen. A Le Pen victory would be bad news for the Euro. Le Pen has recently resigned as leader of the National Front and has made her intentions clear to leave the EU and ditch the euro. Expect severe euro weakness if she gets in.
Macron however is very pro EU, he is currently favourite in the polls and his lead after the first round of votes is the reason behind the spike in euro value earlier in the week. He is definitely deemed safer for the French economy than Le Pen who will not be afraid to rattle a few feathers.
I think the markets have largely factored in a Macron victory and I would not expect a huge jump in euro value if he gains the presidency. If Le Pen gets in, expect volatility and the euro to weaken considerably.
During the European Central Bank’s (ECB) monetary policy statement Mario Draghi, the head of the ECB gives a press conference regarding monetary policy. This can give an indication as to monetary policy moving forward and can influence the markets. He did not give much away on this occasion. Simply stating Brexit uncertainty will have economic consequences and there is no plans to change monetary policy at this stage. A bit of a non-event and there was little movement on GBP/EUR exchange rates.
GBP-EUR If you are buying euros, 1.20 is proving to be a resistance point. For the second time in the last six months GBP/EUR has approached the 1.20 mark only to retract when we hit the high 1.19s. If I was buying euros I would be purchasing if we hit 1.19.
EUR-GBP Despite the opportunity for small gains if Macron wins the elections, the risk of Le Pen gaining power is too great to risk a large sum of money on a Macron victory.
I would consider performing a tranche of my trade before the second round of voting.
Today will see the release of Euro zone Consumer Price Index (CPI) data. CPI is essentially a measure in inflation. The general consensus is there will be a slight increase, but I would not expect too much movement in euro favour if they arrive as expected.
If you have any questions about my Euro report, please feel free to get in touch with me here.
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