The first round of the French Presidential elections is held on Sunday, April 23rd, and the stakes are very high. Opinion polls in the past week have been showing an open 4-way race. Any two of the four leaders can make it into the second round.
Here is some background towards the highly anticipated race, followed by four scenarios. Each scenario is accompanied by its probability and expected impact on the euro with EUR/USD targets.
- French exit polls: Macron wins first round 23.7%, Le Pen 21.7% – EUR/USD should rise
- EUR/USD at 5-month high despite real results showing Le Pen leading
- EUR/USD levels to watch after the favorable first French round
Not your usual French elections
France holds two rounds of Presidential Elections. 11 candidates are vying for support in the first round on April 23rd. The top two will meet each other in the run-off on May 7th.
This presidential campaign is different than in previous years. The outgoing President, Françíos Hollande of the center-left Socialists, decided not to run for a second term, an unprecedented decision. His former economy minister Emmanuel Macron split from the party and announced his own candidacy.
The mess within the ranks of the Socialists was supposed to hand in the elections to the center-right Les Republicans. Any candidate was expected to reach the second round against extreme-right Marine Le Pen and handily win. However, Françios Fillon, a former Prime Minister, and the candidate was embroiled in scandals and refused to quit.
So, there is good chance that neither of the parties that ruled France will have a candidate in the second round.
The four horsemen
Here are the candidates, ordered by the recent opinion polls.
- Marine Le Pen: Leader of the extreme-right National Front. She has a clear anti-immigration stance and more importantly, for markets, wants to hold a referendum on France’s EU membership. There is no euro or the European Union without France, in the core of the core and a founding member. Her victory alone could start the ball rolling towards the end of the euro and she scares markets.
- Emmanuel Macron: The 39-year old left the Socialist party and positioned himself as a new politician of the center with his En Marche party. His economic propositions are considered market-friendly. While he is the markets’ favorite, it is unclear if he can receive enough support in parliament for his agenda. In addition, his supporters are not that certain they will vote for him.
- Françios Fillon: The leader of Les Republicans managed to weather the allegations that he paid his wife and sons a parliamentarian salary for not doing any work and sticks in the race. His ideas are also market-friendly but his lead against Le Pen in the second round is not as wide. He is despised by many voters who might stay at home in the second round.
- Jean-Luc Melenchon: The radical-left candidate was not counted by markets until a fortnight ago. His excellent debate performances put him firmly in the race. Melenchon, an ex-communist, has many unfriendly options. The specter of a Le-Pen vs. Melenchon run-off has haunted markets recently.
- Benoit Hamon: The surprising victory of the extreme-left candidate in the primaries of the Socialist Party put the candidate in competition with Melenchon but he soon became irrelevant for centrist voters. His poor debate performances put him basically out of the race.
Recent opinion polls
As you can see, the polls show a very close race, with the gaps between the candidates around the margin of error. In addition, the number of undecideds is very high.
- Macron 23%
- Le Pen 22.5%
- Fillon 19.5%
- Melenchon 19.5%
- Abstention 30%
- Le Pen 22%
- Macron 22%
- Fillon 21%
- Melenchon 18%
- Macron 24%
- Le Pen 23%
- Fillon 19.5%
- Melenchon 18%
- Abstention 32%
1) Le Pen vs. Macron
This is the baseline scenario that has been dominant for many weeks since Fillon got in trouble. Polls show that these very different candidates lead the polls. In the second round, Le Pen is unlikely to significantly increase her support beyond her base and voters of the moderate left and right will coalesce around Macron. Polls show him winning by margins of around 25%, something that is way beyond the margin of error.
Polls show him winning her by margins of around 25% in the second round, something that is way beyond the margin of error and insurmountable.
Probability: Medium-high. This scenario has the highest chances, but the race is very close.
Euro-reaction: Positive. Markets will begin pricing in Emmanuel Macron in the Elysee Palace and the euro could rise towards 1.10.
2) Le Pen vs. Fillon
This scenario used to be the baseline until February. Fillon is still expected to beat Le Pen in the second round but the margin that polls show is smaller, around 15%. With the amount of undecideds and a general disgust from Fillon, voters could stay at home. Extreme-left voters could prefer Le Pen over the establishment candidate Fillon, similar to events in the UK and the US.
Probability: Medium. This scenario is second in line, but a very close second.
Euro-reaction: Negative. The aforementioned fears could leave the euro shaky, as markets will not be 100% sure that a market-friendly candidate will indeed win. A challenge of the 14-year low at 1.0340 could be on the cards.
3) Le Pen vs. Melenchon
This is the new nightmare scenario. Both candidates are seen as destructive: Le Pen to the EU and integration, and Melenchon to opening the rigid French economy. Markets will not know who to cheer in the second round, even if Le Pen seems more disruptive to the wider European Union. There are not many opinion polls putting these extreme candidates against each other.
Probability: Low. Melenchon is still in the back of the pack.
Euro-reaction: Very negative. Between a Melenchon-induced recession and a destructive Le Pen, the euro could plunge towards parity and below quite quickly.
4) Le Pen fails in the first round
If Le Pen fails and two other candidates surpass her, it will be a huge surprise. It was always seen as a race to beat Le Pen in the second round, counting her as a shoe-in for May 7th.
Macron vs. Fillon would be the most market-friendly sub-scenario, but also Melenchon against one of those centrists will be good enough for markets. Either Macron or Fillon are expected to easily beat Melenchon.
Probability: Very-low. Le Pen still leads most polls, or at least expected to come second.
Euro-reaction: Very positive. Eliminating the candidate that wants to leave the EU already in the first round will be a huge relief. EUR/USD could leap to 1.12 or 1.15.
This is a very important event for the euro – the most important election in 2017, after 2016’s big shocks: Brexit and Trump’s victory. EUR/USD is reflecting the high tension and looks like a coil set to spring out.
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