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Countdown to the French Election

First there was Brexit, then Trump and now it’s the French election; or at least that’s the narrative playing out in the markets. We take a closer look. The Australian dollar was the top performer Thursday while the yen lagged. The Japan Nikkei PMI is due next. The Premium Insights closed the EURCAD long at 1.4495 for a 235-pip gain in order to make a way for a tactical dual EUR trade on Friday ahead of Sunday’s French elections.

Polls showed fractional momentum for Macron, helping to boost the CAC-40 in countdown mode to the Sunday’s 1st round vote. That uptick may be telling because a large number of voters said they were undecided earlier in the month.

A poll from Harris showed Macron at 24.5%, Le Pen at 21%, Fillon at 20% and Melenchon at 19%. Given the margin of error and other factors like turnout and undecideds, it’s conceivable the second round could be the far right candidate Le Pen and the far left candidate Melenchon. Polls show Melenchon would win that contest but German Fin Min Schaeuble called it a ‘nightmare scenario’ because both are euroskeptics.

What’s important to remember is that’s a highly unlikely scenario and the only result that could immediately upend the euro. If Macron finishes in the top-two and moves to the runoff, he’s heavily favoured against any of the candidates. Fillon would also be a big favorite against Le Pen or Melenchon.

So while the market sees this as a potential redux of Brexit or Trump, it would take a far bigger swing. Brexit polls were close in the days ahead of the vote and Trump lost the popular vote but won the electoral college. In France, it’s a national popular vote so polling is simplified.

That said, there is always the risk that voters are playing coy with pollsters again or could swing late. The risks may be even higher after what looked like a terrorist attack on the Champs Elysee late Thursday. That alone could add to jitters Friday.

After talking with many traders and analysts, there is a distinct fear of history repeating itself but those fears (and market pricing) overstate the odds of a major surprise.

Sunday Afternoon Volatility

Watch for exit polls hitting at 8 pm Paris time on Sunday (7 pm London, 2 pm New York), coinciding with the market open in the Pacific.

Before that, we’ll watch for continue comments from leaders at IMF meetings in Washington and the Japan Nikkei PMI at 0030 GMT. The prior was 52.4.

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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