How big of a risk is the French election for the markets?
I believe that the significance of the presidential elections in France is quite comparable in scale with that of the referendum on the UK's withdrawal from the EU. At the same time, the risks for financial markets can be even greater in case the Frexit supporters win.
Which is the best tool to track French-election market risk? French bonds? CAC-40? Polls?
In my opinion, you can use the CAC index 40 as well as sovereign CDS and interest rate spreads for the risk assessment.
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?
As we see, the euro is strengthening now. This means that investors do not expect the victory of Frexit supporters in the first round of elections. If any of them win, I do not exclude the instant fall of the euro to parity with the dollar, or maybe lower.
And how high could the EURUSD rally if Fillon vs Macron was the outcome of the first round?
In my opinion, the potential growth of the euro is limited by the presence of internal economic problems in the European Union. Nevertheless, the victory of the supporters of European integration in France is quite capable of raising the EURUSD rate to 1.13-1.15
Could the French election have a GBP-Brexit-type effect on the EUR?
I believe that if a referendum on France's withdrawal from the EU is announced, the euro may well repeat the fall of the pound after Brexit.
Should traders prepare for important gaps in the Euro on the post-election Monday openings?
I do not expect a significant gap on Monday, since this is only the first round of elections. It's unlikely that Frexit supporters will get an absolute advantage. In my opinion, there will be a second round of elections on May 5th.
Where would capital fly in case of a EUR meltdown if there was a Frexit? German bonds? USD? Other currencies?
Most likely, the main beneficiaries of Frexit will be USD, JPY and gold.
Is the European Union "two-speeds" idea good for the EUR in the long-term?
I believe that the EU "two-speeds" idea is good for the Germany, and therefore for the EUR.
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