*Markets are not anticipating any surprise and an unexpected outcome produce some serious bruises.
*If Le Pen wins the first round, the euro/dollar pair could move towards 1.05.
As is often the case, the biggest moves usually take place after the market gets a surprise. If you look at the euro/dollar pair, it appears that traders are not afraid of the French elections as they do not believe that Marine Le Pen, who holds an anti-European view, can win the election. However, last night’s attack on Paris could have a massive influence on the political front, not only in France but also in the UK which is also preparing to head to the polls.
Nonetheless, the main factor which is currently supporting investors’ confidence is the polling data. All polls show that Macron will win the elections. Time over time, we have seen how unreliable these polls can be and how they can easily push you off a cliff without a rope. Therefore, we think it is very important that one should have an appropriate hedge in place as we go into this event.
The euro is consistently losing its resistance and the move toward the 1.10 mark or beyond is highly likely, especially if Macron wins the election. Having said that, a factor which cannot be ignored is the dollar’s weakness. The dollar is having a bad time due to the softness in the economic data. The soft data is catching up with hard data and the dollar has lost its mojo, in addition to the disappointment of Trump’s inability to deliver on half of the things he promised.
On the flip side, if Le Pen wins the election, it could get really ugly for the euro. She has said that she won’t force a euro exit, but the referendum option is definitely on her agenda.
Our models predict that the euro could dive towards the 1.05 or 1.04 mark. The reason that we think a hedge could be a better option here is that this downward move for the euro may not end here because our probability calculator is telling us that we could move towards the 1.038 mark or even lower.
The precious metal is also not showing any signs of imminent panic among investors as the price action is the most boring. We are still sitting below the mark of 1300, but an unexpected outcome would push the price well above this mark (surpassing our initial target of 1300). This would be a start of another bull move for the metal which could bring us closer to our next target of 1380.