Should Forex Traders Care About the French Election?
Between the 23rd of April and the 7th of May 2017, France is heading to one of the most important elections in the nation’s long and decorated political history.
With the outcome still clouded in uncertainty, forex traders around the world are rightly asking questions of their forex broker as to what the impacts of a shock could be. A shock that with global markets increasingly intertwined, could potentially have even greater implications than to only Euro exposed forex currency pairs or indices markets.
Following the shock Brexit bloodbath and the highly unfancied Donald Trump becoming President of the USA, the reputation of pre-result polling has taken a battering. Opinion now seems to be that right leaning politics will never poll as well as their counterparts on the left and that polling as we knew it is no longer relevant.
The potential repercussions from the French Election on markets go far beyond French stocks and even the Euro. Could this election be seen as a precursor to mainland Europe finally saying that the European Union failed? This is now a valid question that exposed traders must actually confront head on.
One big difference with the French Election compared to say Brexit or the election of Donald Trump, is that there is no clear frontrunner like we saw overtaken in these two. Predicting the outcome of the French election, and therefore its potential impact on financial markets, is next to impossible.
As forex traders, this is why we need to take serious notice.
Who are the Candidates for the French Election?
The system that French elections use only adds to the uncertainty that forex traders now face.
There are two rounds of voting and the first round winners don’t always end up taking power. Three in the last eight Presidential Elections have been won by the runner up from the first round and storming home.
A Marine Le Pen victory is seen as the biggest risk to forex markets ahead of the election, while a win by Emmanuel Macron or François Fillon with a majority or coalition being formed are alternative scenarios that would be welcomed by traders.
Let’s take a closer look at the candidates:
Candidate: François Fillon
Party: Republicans (LR)
This candidate’s policies aren’t the most transparent and as a result, the uncertainty surrounding a François Fillon victory is high. This is one aspect to watch out for if you’re observing the French election as a trader.
Economically, his plans are EXTREMELY ambitious, which as we’ve seen so often before can have a case of not being able to fulfill their election promises. People like the sound of them though, and this is one area that campaign traction has been gained.
With the implementation his economic reform promises, would surely come a huge boost for business and especially the French stock market. With this surge in economic growth, the Eurozone would also benefit and a flow on effect would be felt in the Euro.
Candidate: Emmanuel Macron
Party: Forward! (EM)
This is the country’s former Minister of Economy under the Socialist party. However, he sensationally quit the part to launch his own centre-left movement known as Forward! This candidate, while a definite outsider to win, would be a much safer option for markets.
In saying this, Macron has been very vague in his policy and is playing on the ‘safety’ aspect in his campaign.
He’s promised to reform France’s pensions programme, cut corporation tax and invest €50 billion in public spending. While all these promises sound good on the surface, you have to remebmer that they are in fact just that at this stage… Promises. We will see.
Candidate: Marine Le Pen
Party: National Front (FN)
In terms of market impact, it is difficult to look beyond Le Pen’s headline policies on France’s membership of the EMU and EU. Le Pen wants France to leave and a ‘Frexit’ as it has been popularly dubbed would send shockwaves through an already struggling EU. Surely it wouldn’t be able to survive if another major economic player left. This is where the uncertainty of a Le Pen win comes from.
An outspoken Eurosceptic taking charge of a major European economy would not look good for the short term future of the European Union, so any signs that Le Pen is edging closer to victory could make markets anxious. Keen an eye on your exposure if this scenario looks like taking place as things could get ugly quite quickly.
Candidate: Benoît Hamon
Party: Socialist party (PS)
The Socialst party that Benoît Hamon heads up has turned into somewhat of a left-wing rebel. The party of incumbent president, Francois Hollande has chosen not to run again and under Hamon, a slightly different direction has been taken.
Hamon’s policies announced so far have been described as ‘radical’ by some, especially the headline-grabbing universal monthly income of €750. Do you see that as a realistic option?
While so far the market has been focused on Le Pen’s plans to break away from the Euro, Hamon’s far left leaning policies also have the potential to throw a huge spanner in the works of France’s membership in the current EU setup.
Forex and Indices Markets to Watch for Volatility
The French Election likely to cause an increase in volatility across global markets no matter the outcome. This all comes back to market expectations and the risk that is already being priced into forex markets even before citizens go to the polls themselves.
– EUR Currency Crosses
– EU50 (Newly added to the Vantage FX MT4 platform!)
As you can see from the following EUR/USD chart, the Euro has depreciated sharply over the last couple of years, with exaggerated moves following Brexit and the Trump election as we have spoken about already above:
Keep an eye on the @VantageFX Twitter account as the election draws closer while we go over some more of the exposed charts and what traders can expect as the correct scenario plays out.
Have markets learned from the past in pricing future risk of a nationalist candidate winning the election? That’s something we just can’t tell and why Vantage FX are expressing to our clients to exercise extreme caution to their exposure over the election.
Uncertainty brings unnecessary risk. Make sure you know your exposure and how to manage it.
Dane Williams – @VantageFX