The first round of French presidential election will take place on Sunday, April 23. The top five candidates are Francois Fillon (Les Republicains), Benoit Hamon (Socialists), Marine Le Pen (Front National), Emmanual Macron (Independent) and Jean-Luc Mélenchon (Unbowed France). The two top candidates out of the first round will face each other again in the second round on Sunday, May 7, with the winner becoming the new president of France.
Marine Le Pen, French National Front (FN) political party leader has been running an anti-euro and anti-EU campaign, trying to take advantage of the global populist wave, which came back to life after the United Kingdom decided to leave the EU and Donald Trump became the 45th President of the United States. Le Pen made it clear that she will call for a referendum to leave the EU in case she wins the election.
Emmanuel Macron, who served as the economy minister from 2014 to 2016, is expected to move on to the second round of elections side by side with Le Pen. According to the latest polls, Macron is the frontrunner in the second round, only a year after launching his political movement. At 39 years old, Macron refuses to be a part of neither the Left or the Right. “I’ve seen the emptiness of our political system from the inside… I reject this system,” he said, calling for a “democratic revolution.”
The latest Ifop-Fiducial poll showed Macron winning 24.5% in the first round on 23 April, two points ahead of Le Pen. However, political experts think that Thursday's terrorist attack in Paris could help Le Pen score a higher percentage. Moreover, according to CNBC, President Donald Trump says he believes Thursday's attack in Paris will "probably help" far-right candidate Marine Le Pen in France's upcoming election.
Implications for EUR
Although the first round doesn't determine the next president, the winner will move into the second round with an advantage. Having said that, if Macron comes on top, the Euro could have a relief-rally against its rivals. When Le Pen disappointed her supporters with her performance in the first televised debate, the euro jumped to its six-week high against the USD.
"As the polls stand currently, it is a four-horse race still with Macron leading 24% vs Le Pen's 22.5%, Fillon 19.5% and Melenchon 19%. A first round outcome as this should enable the euro to drift higher. However, should a combination Le Pen and, say, Mélenchon, come out on top, this could be a big upset for European stocks, bonds and the euro." said Ross Burland, an analyst, and editor at FXStreet.
Even if Le Pen wins the first round, it's still a long-shot for France to leave the EU. First of all, Le Pen will still need to win the second round to become the president. Additionally, she will have to call a referendum if she wants a 'Frexit'. However, the short-term market response is bound to be a euro sell-off as a Le Pen victory would raise concerns over the integrity of the EU, as other member countries could also start looking for an exit.
In their latest weekly FX report, analysts at Bank of America Merrill Lynch argue that anything is possible in the 1st round of the French elections according to the polls and add:
"Although hedging has increased sharply, this is against long positions. Markets still appear underpricing the risks. We have been more concerned than the consensus, but
our baseline assumes no tail risk scenarios."
The EUR/USD faces the first technical resistance at 1.0790/1.0800 (200-DMA/psychological level), and a break above this level could give way to further gains towards a new 2017 high above 1.0905 (Mar. 27 high). If a euro sell-off is triggered with a Le Pen victory, a break below 1.0650 (100-DMA) and 1.0500 (Mar. 2 low/psychological level) could target 1.0340 (Jan. 3 low). We also need to keep in mind that a Le Pen victory is likely to hurt the risk sentiment as well. Hence, we can see a sharper drop in EUR/JPY towards a new eight-month low at 113.70 before 112 (Sept. 18 low).