Forex Trading Library

French Elections 2017: Trade The Uncertainty, Not The Outcome

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Francois Fillion in meeting for the primaries of the political party Les Republicains.

If there’s one thing that Brexit and the U.S. elections have shown, the only certainty, at least in the current global landscape is uncertainty. Opinion polls have continued to shift back and forth, and so far, the major narrative has been that Le Pen will be reaching the second round of elections.

Opinion polls and prominent names from the Eurozone have all ruled out a Le Pen victory. While it seems like a lucrative option to bet on a Le Pen victory, the outcome from Brexit and the U.S. elections points to the fact that anything is possible.

Michel Sapin, French Minister of economy, warned early in February (and indirectly hinted that a vote for Le Pen was like a bet against France) that traders would lose a lot of money if they expected to see Le Pen win the 2017 French elections.

Here’s why you should focus on uncertainty of the French elections and not the outcome

Thus, to bet on a Le Pen victory is just as risky as betting against her opponent. The French elections will no doubt play a very big role in shaping the outcome of the Eurozone, but on the same note, it is not as simple as the Brexit referendum or the U.S. elections.

This is because the elections are held in two rounds. In the first round, due on April 23rd, Ms. Le Pen is widely tipped to make it with a comfortable victory in the second round which is due to be held on May 7th. Here, unlike the first round, the second round of elections will be a major event as the outcome would be more binary and puts the French elections on a somewhat similar footing to that of the Brexit referendum or the U.S. elections.

Still, if one though that the uncertainty will end post-May 7th, there is still a long road ahead. For starters, for all the verbal threats of leaving the EU and abandoning the euro currency, Ms. Le Pen must first garner enough support in the parliament in order to bring the referendum to life.

Over the past weeks, Le Pen escalated her criticism for the single currency calling it a “political weapon” and not a currency, making references to the Greek debt crisis.

If Le Pen succeeds in getting the parliamentary approval for the referendum, only then could the so-called threats of leaving the Eurozone become a reality that the world must face.

Thus, it is not hard to miss out that between April and May, the uncertainty is likely to cause a lot of volatility and could, in fact, present some trading opportunities, compared to focusing on whether Le Pen will win or not.

Which forex currencies are best to trade the uncertainty?

Among the currencies, it is, of course, the euro that will be at the core of the issue. However, there is a major distinction to make as if one can remember the euro was, in fact, trading stronger as the threat of Grexit grew. In the case of the French elections, with France being the second largest economy in the Eurozone, the uncertainty itself will most likely weigh on the euro.

While EURUSD remains the obvious choice of the currency pair that comes to mind, EURGBP and EURJPY are also likely to stay in the spotlight.

Among the three currencies, the EURGBP is very likely to be the most volatile (we will know about this closer towards end of March) as the UK prepares to invoke Article 50, which will be an additional factor that will be weighing on the euro to a certain extent but will no doubt impact EURGBP volatility.

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