The French elections are less than a month away, and so far, the uncertainty is just increasing by the days, which likely to lead to higher volatility ahead.
The recent polls show that the nationalist Marine Le Pen is promising to hold a referendum on taking France out of the Euro. Investors are focusing on the process, and more importantly, they are concentrating on the polls.
In the meantime, the uncertainty is rising as the nationalist candidate it calling for a referendum to leave the Euro. However, even if she manage to win the election, there is a long process to hold such referendum.
How Strong Is Le Pen?
If she wins, the president in France would have no control on the parliament, especially that the National Front party has only two lawmakers in the national assembly and no declared allies who might help to form a coalition. Therefore, it would be hard to hold such referendum.
Yet, the risk is always there. Who thought that the Brexit would ever happen, even after the referendum, the world was surprised with the outcomes. Therefore, you need to keep that possibility alive.
CAC40 Is Not Worried
If we look at the CAC40 index, it has been rising steadily since Q2 of last year, breaking key resistances at the end of last year which used to be around 4600.
Such break has led to a notable rally, which lasted until today, reaching as high as 5000, which represents a psychological resistance.
Currently, the index is not showing any signs of fear or uncertainty, however, the volume has eased for the past few weeks compared to the same period of last year.
For the time being, the technical indicators are overbought, which increases the possibility of a short-term correction ahead of the elections, especially that the 5000 level is a psychological resistance and unlikely to be broken easily.
Therefore, buyers are likely to stand aside, for the time being, to wait for the election outcomes before deciding of the next trade.
Gold Might Be Influenced By The Election
The same scenario happened in Brexit and the US elections, but it was another short term move. The prices were rising back in those periods but managed to decline back following the reassurance of the politicians and central banks chiefs.
Last week, Gold eased back significantly and was on the edge of breaking through 1200 support area. However, it manages to stabilize above that solid support due to the US Jobs Report.
Yet, the risk is still there for another leg lower as a part of its short-term retracement, especially after the continuous gains that began since the beginning of this year.
The 50% Fibo and the 61.8% Fibo stands between 1192 and 1176 respectively where buyers are likely to appear.
A break through the technical buying zone would risk Gold’s this year’s uptrend, which may lead to another deeper declines ahead.
On the downside view, 1160 would be the next immediate support if Fibo levels were broken, with a possible deeper decline all the way to 1140 in the coming weeks.