French Presidential Election Roundup & How to Trade Post Election

May 09, 2017 12:06

Dear traders,

On Sunday, 7 May, Emmanuel Macron was elected as France's youngest president since Napoleon Bonaparte, beating his far-right rival Marine Le Pen. My previous article predicted that Macron would emerge as the eventual winner and it seems that I was spot on.

According to the Telegraph, initial projections favoured 39-year-old Macron, affording him almost two thirds of the vote. This showed a clear path to the Elysee Palace for the pro-EU centrist who was a political unknown until three years ago and has never held elected office.

Source: Telegraph.co.uk

Liberal Europe can feel relieved as the new president of France was favoured by Brussels and throughout the campaign constantly advocated closer cooperation with the EU, as opposed to his rival, Marine Le Pen, under whose leadership the second "Economic power of Europe" would possibly have left the eurozone. Macron presented himself as an enemy of nationalism and a friend of an open France that has its own interests: security, economic and social. He wants to defend those interests, but he also wants to deal with them in an open world.

Who is Emmanuel Macron?

Born in Amiens, he studied philosophy at Paris Nanterre University, completed a master's in public affairs at Sciences Po, and graduated from the École nationale d'administration (ENA) in 2004. He worked as an Inspector of Finances in the Inspectorate General of Finances (IGF) and then became an investment banker at Rothschild & Cie Banque. (2)

As a minister, he abolished the regulations that were enforced under some industrial sectors, and allowed shops to work longer on Sundays.

Among his many congratulators were US President Donald Trump and former US Presidential candidate Hillary Clinton.

Source: Twitter

Source: Twitter

Source: Financial times

According to the French Interior Ministry, Macron's strongest areas were Paris, Lyon and Marseille.

Tough Challenges Lay Ahead

The newly elected president has some very tough challenges. More than 230 people have been killed in jihadist attacks in France since January 2015, many carried out in the name of the Islamic State (IS) group. With no previous experience in such matters, Macron has to move quickly to show he has a grip on the terror threat and his role as military commander-in-chief.

Macron sees a reinvigoration of the France-Germany alliance as vital to the re-launch of the new and stronger EU, following the combined impact of Brexit and the continuing migrant crisis.

In his first months in office he plans to visit various European capitals in order to set out a five-year guide for giving the eurozone a genuine spending plan and to develop European defence by coordinating operations and industrial programmes in this area.

Macron said he would continue working to deregulate a labor system that has been blamed for a French unemployment rate stuck near 10%. Macron played a major role in reform efforts as economy minister under France's previous president, Francois Hollande. Macron has also called for greater shared budgeting and investment between EU members.

Impact on Financial Markets

Initially, the European equities made healthy gains on Friday, pricing in a Macron win over Le Pen. Pricing in was a normal thing to happen as investors in Europe were already betting heavily on a Macron victory, with regional indexes rising by around 4% in the weeks leading up to the election.

My opinion is that longer term Macron's win is going to be positive for European businesses, but I wouldn't call it a game-changer. The fear of 'Frexit' and another strike on the record of the eurozone has been averted for time being at least.

CAC40

CAC40 surged to its highest level in more than nine years. The blue chip index surged to 5475 – a record high. As the Macron win has already been priced in, we could see a pullback toward a POC zone on CAC40. In the case of a pullback, traders should pay attention to POC (5191-5260) and POC2 (5094-5142), where we might see the close of the retail gap. Rejection from zones could make a new high around 5520.

DAX30

A win for Macron was, in effect, a win for European equities and the EUR. Essentially, you only had to witness the +3.3% gap up on the Dax30 after Macron won the first round. Nonetheless, the Macron victory should be seen as positive for equities in the medium term, but we must be cautious of the price movements we have had to date and, in effect, the market has largely priced this in. The average PE ratio for the Dax30 is now hovering near 22, so we have a fully priced market, meaning we can have volatility at some point to the downside with any negative sentiment.

Despite this, should inflation continue to build within the EU, then we could see these European equities markets continue to climb, perhaps for a couple of years. Nonetheless, we must look at the short to medium term, and well, historically speaking, the average returns for the Dax30 from May to September are normally negative (1), just like they say - "Sell in May and go away!". So on that basis, we could be looking at a pullback over the next couple of months, but the markets should be bullish longer term if inflation prevails.

So I think, short the rallies when your system provides the signal using appropriate risk management, and here are some possible buy zones, should we see a dip in the next few days:

12,600pts - Big Round Number support - Weekly L4 camarilla support

12,500pts - Big Round Number support

12,428pts - Weekly camarilla L5 support / EMA89 confluence

12,388pts - Bullish order block 4H TF

12,300pts - Big Round Number support

12,239pts - 50ema on Daily TF

EUR/USD

Similarly to equities, the EUR/USD price has already been priced in, so we might see a pullback and a possible gap close where a bullish run may continue. The loss of 1.0930 is a possible signal for a deeper retracement towards 1.0870. The retail gap could only be closed if the pair broke below 1.0820. Mid term, the EUR could reach 1.1100 monthly H4 camarilla level.

This is the issue. If France were to leave the EU before it collapsed altogether, then this would have the potential of reigning-in the hubris and arrogance of the right wingers. If they were to slow down their efforts to destroy what is left of Europe, we could expect a soft landing. A win for Macron is like afterburners for the EU elite.

If the euro had crashed and the EU had come undone, I would have expected social unrest on an unprecedented scale. Don't forget that electors tend to blame the sitting president for everything that goes wrong, even if it was on the cards before he came to power. If that happens, I see a lot of unrest ahead, and Macron will get blamed. As I said, tough times ahead. Lots of volatility too!

For us traders, this is a relief and we should expect great setups as always.

Cheers and safe trading,

Nenad

MT4 Supreme Edition + Volatility Protection

  1. https://www.statista.com/statistics/261680/monthly-development-of-the-dax/
  2. Source: Wikipedia