HOW PLATINUM TRADERS WILL TRADE THE FRENCH ELECTION
What a week it has been, some beautiful Extreme Zone trades came to fruition last week so thank you for all the positive comments about my last blog on the strategy itself. Before we get into today’s blog on Frexit and how Platinum traders will be navigating this event, I want to cast your mind back to Brexit and how Platinum guided its members.
Please take this opportunity to remind yourself of this.
Today’s blog as I am sure you have guessed is on a far more current topic Frexit and how Platinum and its members are navigating this opportunity.
HOW PLATINUM TRADERS WILL TRADE THE FRENCH ELECTION
The French will elect a new President after two rounds of voting. The first has already taken place this last weekend on the 23rd April and has given us a glimpse of what to expect. Emmanuel Macron emerged as the clear front-runner in the first round of the voting. With Macron securing 23.7% (versus Marine Le Pen’s 21.7%), traders have a risk positive outcome and the forex market sentiment is very strong in the end. Even though Le Pen has made it into the second round, without a significant momentum, it would take an incredible turnaround to prevent Macron’s victory on the 7th May run-off.
Understanding the two candidates of the runoff
Party: Forward (EM)
Emmanuel Macron, 39, a former investment banker who has never held elected office, stands a distinct chance of becoming France’s next president.He is also France’s former Minister of Economy under the Socialist party before he quit to embark upon his own centre-left movement. He has made ending traditional party politics the bottom line of his campaign. However, he also has plans for France’s underperforming economy.
The plans include reforming France’s pensions programme, cutting corporation tax and a €50 billion investment in public spending. Though, he’s been unclear about how these plans will be funded. His best guess would be €60 billion raised through increased employment and better economy performance.
His policy on Europe, though, is clear: He is committed to keeping France at the heart of both the euro and the EU.
Marine Le Pen
Party: National Front (FN)
Le Pen has made exiting the Euro the centre of her campaign and has been vocal about her disregard for the EU in its current state. Ms Le Pen leads the Eurosceptic, anti-immigrant National Front party. She has attempted to soften the party’s tone and brought big gains in the 2015 regional elections. She has urged a shake-up of France’s relations with the EU, calling for negotiations followed by a referendum.
France leaving the euro would probably signal the death of the single currency, resulting in huge economic turmoil as 19 euro zone states attempt to deal with the aftermath.
An outspoken Eurosceptic taking charge of a major European economy would not look good for the short-term future of the EU, so any signs that Le Pen is overtaking Macron in the polls could make markets anxious. At this very moment, this looks very unlikely to happen as Macron has already taken the lead in the most recent polls which already show him winning comfortably.
Why is this event important to Platinum traders?
In contrast to other major elections in European Union states (including those arriving before it, in the Netherlands for example, and after it, in Germany in October 2017) the French election on 23rd April and 7th May has no explicit favourite. In reality, trying to make a precise prediction about what the French political scenario may look like in a year from now is hopeless.
The French Election will be the third big global political event after Brexit and the election of Donald Trump as the US President. Since Brexit referendum in June 2016, politics dominate in directing the global markets.
The EU is under tremendous pressure since the UK has voted to leave the bloc in the referendum of June 2016 and officially triggering Article 50 in March 2017. Even though the EU took a hit with Brexit, the bloc could potentially still survive that hit. Wounded but not totally defeated. However, a “Frexit” event, is a much more serious matter for the EU. The bottom of this issue would be a long way off.
Frances Economic/Political status
France is one of the largest economies in the EU which represents around 15% of the European Gross Domestic Product. The French are also a very important political factor in the Union. The country is one of the founding members and paying one of the key roles in European politics, as an important decision maker in the Union.
Taking into account these factors, a change in presidency in the coming election will most likely have a major impact on the single European currency as well as the bloc’s economy. As a result of the persisting global crisis which hit the Eurozone, especially the smaller economies, a crisis in Greece was threatening to cascade to the other members of the bloc, the Euro is weakening since 2008, when the crisis started.
Quantitative Easing Program
As a result, the European Central Bank (ECB) was forced to keep lower interest rates and start pumping larger amounts of money into the system, known in the trading world as Quantitative Easing Program. The single currency is holding at the back foot ahead of French elections, trading at levels last seen back in 2003.
What would be next for the Eurozone?
Platinum traders should be more than aware, as we have posted on our Platinum Trading Floor a few times this year, that Europe would be facing some challenging time ahead of them with the major elections affecting main states of the bloc and with the new stream of Populism on the rise. Apart from France, we will have other important elections taking place in the near future which will likely be big tests for the EU project. Without getting into too many details, they are as follows:
Germany – October 2017
Angela Merkel’s CDU party has been losing seats to the anti-EU AFD. While unlikely at this point, a Merkel defeat would be the biggest possible blow to the EU’s future. Germany is the continent’s biggest economy.
Italy – April 2018
General election called after pro-EU PM Matteo Renzi was comprehensively defeated on 4th December 2016 in a constitutional referendum. Italy’s three opposition parties are in favour of leaving the euro, which they believe is preventing the country’s economy from growing.
Together with France, these 3, from the biggest economies in the Eurozone. If one of them votes to leave the EU, it would almost certainly trigger the end of the European Union.
However, potential threats do not end with them.
Hungary – Spring 2018
The popular current Prime Minister Viktor Orban has incurred the indignation of the EU by erecting wire borders around the country – in defiance of the EU, which he openly discredits.
If just one of these countries left the EU, the financial burden would be immense. The whole project would be called into question. Britain has already left. Should another nation follow… it would be like a theatre filling up with smoke – how long would it take before it becomes a rush to the exit?
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Have a beautiful day and an even wonderful week!
Live from the Platinum Trading Floor.