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EUR/USD: analysis of the impact of Sunday's French presidential election: 4 scenarios possible (HSBC)
HSBC analyses the impact of the first round of French elections on the EUR/USD according to four potential scenarios.
"The first round of the presidential election is to be held this Sunday on 23 April. The vote remains very tight, and there is considerable uncertainty about the 2 qualifiers that will be present for the second round on 7 May.
We are studying four potential scenarios and their impact on the EUR/USD. We are considering the examined scenarios according to the potential implications for the EUR with 4 possible outcomes: positive-positive, positive-negative, negative-positive and negative-negative.
1-Positive-positive: Macron vs. Fillon: EUR/USD could rise rapidly to 1.0905, then 1.12.
2-Positive-negative: Macron vs. Le Pen: EUR/USD would move in range between 1.0350 and 1.09, with a strong bullish bias if Macron leads.
3-Negative-positive: Le Pen vs Fillon: EUR/USD would move in a range between 1.0350 and 1.09, with a strong bearish bias if Le Pen leads.
4-Negative-negative: Le Pen vs Mélenchon: EUR/USD could fall towards 0.90.
We could expect most of the movements to be felt on the EUR, but the forex seems to have already incorporated much of the downside risk in the single currency. As such, there could be a better risk-benefit ratio by seeking to hedge against downside risks by using other currencies. We believe that the GBP and PLN could face strong downward pressure if scenario 4 emerges. But little risk seems to be embedded in these currencies, and we do not think they will go up dramatically if scenario 1 emerges."
Forex-Central.net believes that the best outcome for France would be a Fillon victory (and the EUR/USD would clearly benefit). However, if Melenchon - an angry communist who seems hell-bent on punishing employers and the wealthy - is elected, France would plunge into economic chaos (soaring unemployment, more taxes and massive outflows of capital) and the EUR would easily sink to 0.90.