Euro Hits Level Not Seen Since November 2016 on Back of French Election Result

On Sunday, the French presidential first round election provided the two candidates that will face off on the 7th May. The centrist candidate Macron came first with a small lead over second placed far-right candidate Le Pen. The markets reacted favourably to the news of a mainstream candidate getting through to the second round. The Euro broke its downward trend over the weekend, opening this week’s session by reaching a new high at 1.0919, before retreating to lower levels.

The latest polls show Macron with a nearly 20% advantage over contender Le Pen to win the election. Although that would seem an unsurmountable difference markets are still cautious as to what the outcome may be. The memories of the unexpected wins for outsider Trump and unlikely Brexit are still lingering.

Goldman Sach’s issued analysis suggesting the Euro could go much higher, close to 1.13000 if Macron does win the second round in two weeks. A lot also depends on the strength the Euro may find of its own; yesterday’s IFO Business Confidence for Germany was the highest since July 2011. On Thursday the ECB will hold a monetary policy meeting, with a press conference at 1:30pm. Interest rates are expected to remain the same. But there will be a lot of expectation for wording on forward guidance, markets will be searching for clues to any change in the asset buying program.

If you think that the Euro will rise against the US dollar over the next week then all you need to do is buy a Call option, which gives you the right to buy EURUSD at a specific price (strike), date (expiry) and amount of your choice.

The screenshot below shows that a EURUSD Call option with a 1.08489 strike, 7-day expiry and for €10,000 would cost $53.77, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above Call option, just click the Scenarios button.

On the other hand, if you feel that the Euro will return to its downward trend over the next week then all you need to do is buy a Put option, which gives you the right to sell EURUSD at a specific strike, expiry and amount.

The screenshot below shows that a EURUSD Put option with a 1.08489 strike, 7-day expiry and for €10,000 would cost $50.42, which would also be the maximum risk.

This screenshot shows the profit and loss of the above Put option.