Macron says Frexit? Markets Ahead of The French Election

It’s Monday, the 1^st of May of 2017 and the second round of the French election is less than 6 days away, where such election might change the shape of Europe once and for all.

Latest Public Polls

Since the end of the 1^st round of the election, Macron has been leading with more than 60% of the public polls, while Le Pen was short below 40%.

However, for the past week, she has been gaining some more votes, but still far away from the 50% mark.

Shocking Comments By Macron

Earlier this morning, in one of his rallies, Macron noted that the EU needs to implement strategic and key reforms. Otherwise, the EU will face Frexit.

This is the first time Macron mention Frexit since the beginning of his campaign, which is alarming. At the same time, both candidates are now hinting toward Frexit, which would increase the fight ahead of the elections.

French people may increase their bet toward Macron more than Le Pen, even if they are supporting Le Pen’s Frexit plan.

ECB Remains Neutral

The ECB decided to keep the current rates on hold as widely expected. At the same time, the bank decided to taper the QE by 20B euros as planned.

Yet, the ECB made it clear that their decision is not based on the political situation in France, saying at the ECB we discuss “policies not politics”.

Moreover, the ECB noted on Thursday that the recent rise in inflation might not be a trend, easing the possibility for a sooner rate hike by the ECB anytime soon.

However, on Friday, the inflation spiked further including the CPI and the Core CPI. Such figures might weigh on the ECB at its next meeting, but the bank would be clearer right after the French election.

EURUSD Remains Steady At 1.09

The Euro managed to spike right after Friday’s inflation data, rising to as high as 1.0950. However, it retreated back earlier this morning to as low as 1.0880.

Since the beginning of last week, 1.0860’s remains a solid support. At the same time, 1.0950 is a key resistance. Both should be watched carefully over the coming days.

For the time being, traders should keep in mind that the Euro gap that occurred last Monday is not filled yet. Such move might be filled later this week. Therefore, it’s advisable not to rush into trading, at least on the buying side.

Closing the gap remains very possible ahead of the French election, while any negative surprise (Le Pen winning), would be a catalyst to break below 1.06.

CAC40 Not Worried

The CAC40 index remains steady above 5200 since the results of the 1^st round of the election, which shows how the market is not even worried about the 2^nd round of the election next week.

Generally, the market is already cheering for Macron. However, everything is possible, just like what happened during the Brexit referendum and the US Presidential election.

In the meantime, the technical indicators are heavily overbought on most time frames, which increases the chances for a short-term retracement ahead.

Also, traders need to keep in mind that even if Macron wins the 2^nd round of the election, CAC40 retracement will be more likely and that the upside momentum will be minimal as the market has already priced in his success.