Forex Market Analysis: Market Reacts to French Election Results

2024/07/01

CURRENCIES

French election outcomes:

• The right-wing National Rally (NR) party secured nearly 34% of the vote.
• The left-wing New Popular Front garnered just over 28%.
• President Macron’s alliance came third with around 21%.
• NR is close to the 289 seats needed to form a government but is projected to fall short by about 10 seats in the second round.

Market response:

• Both the Euro and CAC 40 started the week strong.
• CAC 40 rose by 2.5%, now at 7,685, yet still below the May 10th peak of 8,262.
• The Euro increased, but further gains may be limited before next week’s elections.
• EUR/USD is trading around 1.0765, near a three-week high.

Market conditions:

• Anticipated tactical voting in France could heighten CAC 40 volatility.
• Important upcoming US data, particularly Friday’s US Jobs Report (NFP), will impact EUR/USD movements.

Trader sentiment:

• Retail trader data indicates 50.39% of traders are net-long.
• The ratio of long to short traders is 1.02 to 1.
• The number of net-long traders decreased by 10.75% since yesterday and 25.08% since last week.
• Net-short traders increased by 21.60% since yesterday and 30.87% since last week.
• A contrarian view suggests EUR/USD might fall, but recent sentiment shifts hint at a potential upward reversal despite current net-long positions.

STOCK MARKET

Market reaction:

• European stocks and the euro surged on speculation that Marine Le Pen’s far-right party will struggle to secure an outright majority in the French elections, reducing investor concerns about a radical policy shift in France.

Election impact:

• France’s CAC 40 Index jumped 2.8%, the largest gain since November 2022, as Le Pen’s National Rally led President Macron’s centrist alliance by a smaller margin than expected.
• The Euro reached its strongest level since mid-June.
• The yield spread between French 10-year bonds and German bonds narrowed, indicating reduced risk perceptions.

Market performance:

• Europe’s Stoxx 600 Index rose by 1%, with banking stocks leading the gains.
• Societe Generale SA, BNP Paribas SA, and Credit Agricole SA surged over 5%.
• US equity futures trimmed earlier gains.

Market sentiment:

• Investors showed relief as neither far-right nor far-left parties are expected to implement extreme policies.

Corporate news:

• Boeing Co. agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 per share in an all-stock deal.
• The US Justice Department will charge Boeing with criminal fraud.

US economic data:

• Indicators suggest the US economy is cooling without lasting consumer damage.
• US consumer sentiment declined less than expected, with inflationary pressures predicted to moderate.
• Treasury 10-year notes showed little change.

Global market dynamics:

• The South African rand led gains among emerging market currencies after President Cyril Ramaphosa announced a new business-friendly cabinet.
• Oil prices edged higher amidst economic and geopolitical assessments.
• Iron ore prices rose on signs of recovery in China’s property market and potential further support from Beijing.

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