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Market Wire
French Election
Macron and Le Pen Head Into Next Round

Karl Schamotta April 23, 2017

Emmanuel Macron and Marine Le Pen are set to face each other in the final round of the French election, setting the stage for another two weeks of extreme stress in European markets. With early counting of ballots underway, Macron has taken an estimated 23.8 percent of the vote versus Le Pen’s 21.6 percent, with Republican Francois Fillon capturing 20.3 percent against Jean-Luc Melenchon at 19.6 percent. Pollsters estimate the turnout rate for the first round at around 80 percent of the French population.

With euro-friendly candidates ahead in the race, currency markets are taking an extremely optimistic stance, sending the euro up roughly two percent against the greenback, while an improved appetite for risk is helping to lift economically-sensitive currencies like the Canadian dollar. Liquidity conditions remain extremely thin however, suggesting that this knee-jerk reaction could pass quickly – possibly causing a number of major pairs to mean-revert into recent ranges.

Taken in sum, centrist candidates failed to collectively top 45 percent of the vote – suggesting that an upset of the type that triggered the United Kingdom’s divorce from the European Union and thrust Donald Trump into power remains a distinct possibility. Moderate voters are expected to coalesce around a Macron presidency, but major questions remain around Le Pen’s capacity to pull dissatisfied citizens from Melonchon’s camp over the coming two weeks. Media appearances, sentiment surveys and televised debates all loom as potential volatility triggers during this highly-fraught period.

Bottom Line: Today’s narrow margin of victory for Macron puts the conditions in place for a nail-biting finish on May 7th. Position-taking in currencies will likely remain depressed, with one-month implied volatilities in options markets continuing to exhibit extreme stress. Keep an eye on participation levels – the number of French citizens planning to vote in the second round will have an enormous impact on markets over the next two weeks.

For those prepared to harness them, rare and fleeting opportunities will present themselves in the coming days – talk to your trading teams about your hedge execution strategies.


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