On the French Front

Technical Analysis
05 Mei 2017
On the French Front

A few weeks back we talked about the relation between the economic stability of Europe and the politics that guide it. With elections in France, Germany, and the recently-announced preliminary vote in the United Kingdom, there is much that can impact the markets.

France is the first of these three major factors. As one of the most advanced states in the world, France is an important pillar of the European Union and its fate can affect the world in many ways. This year France is choosing a new president. Let us remind you that France is a presidential republic, so the president there actually has executive power to do a lot of things.

As April rolled out, we saw the first round of elections in France where all candidates competed and, as forecasted, Emmanuel Macron and Marine Le Pen got most of the votes. Since neither of them collected more than 50% they are set to face each other in a second round this Sunday.

A little bit is in order about the two candidates. On the one hand, we have Macron, a man and politician that is best described as average or ordinary. There is nothing particularly scandalous or inspiring about him. If the conditions were different and he wasn’t running against Le Pen, perhaps he wouldn’t even have made it to the second round. But with his stable look and pro-EU attitude, Macron seems to his French voters as someone who would preserve the order in France as it is, which makes him a good candidate.

On the other hand, there is Marine Le Pen, leader of the far right in France, which she inherited from her father. Her supporters are loud and passionate (much like Trump’s); they are eager to see changes in France. However, Le Pen plans to make those changes happen by breaking with the European Union and focusing on a “strong” but isolated France. Although she has more class and political savvy than her American counterpart, Le Pen still suggested policies based on racism and Islamophobia.

Preliminary polls predict an easy win for Macron, mostly on account of the fact that he would collect the protest vote against Le Pen and would likely unite the voters against her. A Macron win would also stabilize the European Union (and the euro), which is why it’s desired by investors.

The euro already moved up yesterday against the dollar based on Macron doing better in the presidential debate than Le Pen. The latter appeared not to have a clear plan about her proposal to leave the eurozone – Le Pen wasn’t able to point out whether she wants France to revert back to the franc or how it would pay off its debts. Leaving the eurozone most certainly will lead to a default and an economic crisis in France.

So here you have it: Macron is good for the euro, Le Pen is not. Polls predict a strong Macron win. These are the results to watch out for. However, 2016 proved that polls can get it wrong, and if by any chance Le Pen wins, there will be mayhem on the markets. Keep an ear to the ground for any news from France. We hope you’d be able to profit from any resulting volatility.

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