CAC-40, EURJPY the best tools for investors to track French elections

• How big of a risk is the French election for the markets?

The French election is a major event that has the ability to create serious shock waves across the financial markets. With recent polls showing a fierce four-way battle between four candidates, and millions of French voters still undecided, uncertainty remains a key theme. The growing threat of Eurosceptic parties gaining ground could deal a symbolic blow to the stability of the European Union, which may ultimately spark waves of risk aversion across the board.

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• Which is the best tool to track French-election market risk? French bonds? CAC-40? Polls?

Investors may turn to the CAC-40 and the EURJPY currency pair to track the French election market risk. Although polls remain a popular choice, they have been have been incorrect in the past and could be proven wrong again; the Brexit shocker and Trump’s presidential victory are prime examples.

• Polls are forecasting a very tight race among the main four candidates in Sunday’s first round: how low could EURUSD go in case of a Le Pen vs Mélenchon showdown in the second round?

A Le Pen vs Mélenchon showdown may be a nightmare scenario for the Euro that triggers a sharp Brexit style depreciation. The EURUSD could stumble to near parity as investor jitters mount over a potential Frexit situation and uncertainty over the future of the French economy builds.

• And how high could the EURUSD rally if Fillon vs Macron was the outcome of the first round?

The EURUSD could receive a welcome boost in the event of a Fillon vs Macron outcome, since the threat of Eurosceptic parties destabilizing the unity of the Eurozone will be out of the picture. A sharp rally towards 1.09 (and potentially higher) is a possibility, with the trajectory of the EURUSD turning bullish. 

• Could the French election have a GBP-Brexit-type effect on the EUR?

In the event of a Le Pen vs Mélenchon showdown, the EUR may find itself exposed to extreme downside shocks similar to the GBP-Brexit effect. A Le Pen victory could potentially send larger tremors across the financial markets than Brexit!

• Should traders prepare for important gaps in the Euro on the post-election Monday openings?

With uncertainty still a major theme in the French elections, traders should expect the unexpected -- and that includes potential gaps in the Euro post-election. Volatility may reach explosive levels, especially if markets are served up a shock election. Investors should keep diligent as gaps could be expected on both the EURUSD and EURJPY.

• Where would capital fly in case of a EUR meltdown if there was a Frexit? German bonds? USD? Other currencies?

In the event of a Euro meltdown, the flight to safety may boost attraction for safe-haven investments such as Gold, Dollar and the Japanese Yen. Gold is already supported by the ongoing geopolitical tensions, and a EUR meltdown could inspire bulls to send Gold prices towards $1300 and potentially higher.