Its Macron vs. Le Pen

I wrote yesterday that the high turnout was most likely to indicate a worse than expected result for Le Pen. In fact, the polls basically it right with a high degree of accuracy: they had Macron on 24.5%, Le Pen on 23% and Fillon & Melenchon at 19% each. The actual result was almost identical.

The election will now proceed to a straight fight between Macron and Le Pen on 7th May, and the same polls which predicted yesterday’s result so accurately are now forecasting a 22% margin of victory for Macron. It looks as if Marine Le Pen will be crushed in the second round against a mainstream candidate the same way her father was in 2002 when he was very comprehensively beaten by Jacques Chirac. However, it is worth noting that in this election, Chirac took 82% against Le Pen’s 18, whereas today’s poll suggests Marine Le Pen will win 39%, suggesting that the Front National has broadened its appeal over the past 15 years.

The result had a strong impact upon the market: relief that a main-steam candidate leads the race translated into a gap up to a 4-month high for the EUR/USD currency pair, while stock markets rose globally while safe-haven assets such as the Japanese Yen, gold and silver all fell strongly.

It would be logical to assume that New York will follow this sentiment when it opens, but the action has looked a little thin in recent hours and I have a feeling that an initial corrective sell-off is going to happen at the open. The market will then look to U.S. CB Consumer Confidence data due a little later, with a result above 124 likely to push stocks higher again.

Recent hours have seen rumors of an incident off the Korean coast, but it has not been verified and seems to be just a rumor.

le pen

Polls Open in France

Round one of the French Presidential election has got underway, with polls closing at 8pm local time with initial results due at about 9pm. Initial indications are that the turnout is high and set to surpass modern records at over 80% of eligible voters. My gut feeling is that this shows a worse than expected result for Le Pen is likely, the same way that an above-average turnout helped the center in the recent Dutch election a few weeks ago. Continue reading…

Waiting for U.S. Dollar Direction

The market has been quiet so far today, which is typical when there isn’t much news scheduled for the London session, or at least that earlier part of it which does not overlap with New York business hours. There is also some U.S. Dollar-related news and events taking place later, and that is another probable reason for the quite dull trading that has been taking place so far. Firstly, there will be releases Unemployment Claims and Philly Fed Manufacturing Index numbers, which don’t usually create a lot of movement. Later, the U.S. Treasury Secretary Steven Mnuchin will be speaking at a Summit, and although it is not being billed as a major speech, I think this is where a spark for the market will be more likely to happen. Mnuchin and Trump have recently given some contradictory messages regarding the desirability of the relative strength of the U.S. Dollar, and anything Mnuchin may say touching on that could be influential. Continue reading…

British Pound Breaks Out

In a surprise announcement today, which took political observers completely by surprise, the British Prime Minister Theresa May announced she would seek an early general election, to be held on 8th June. The next election had been scheduled for 2020, three years hence, but as the opposition Labour Party announced it would support the early election, the new date looks almost certain to be confirmed by the end of Wednesday 19th June. Opinion polls point to a landslide victory for Theresa May and her governing Conservative Party, suggesting a majority of 112, the size of which has not been achieved by any Conservative leader since Margaret Thatcher in the 1980’s. The opposition Labour Party is forecast to win 183 seats, which would be its worst result since 1935.

What does this mean for the British Pound? It began to rise against all currencies as soon as the announcement was made, and when the Labour Party quickly backed the early election, it broke out of its long-term range. It has already made a high of 1.2729 against the U.S. Dollar, its highest price in more than 4 months, and well above the area it was trading in following the “Hard Brexit” announcement on 7th October:

GBP/USD, British Pound

The long-term triangle formation shown in the chart above looks to have been decisively broken, although the price could fall back down below 1.2610 within the next few days.

Traders who have been respecting long-term trends will have noticed that the GBP/USD currency pair was alreadyTheresa May starting to look bullish in recent weeks. Nobody can forecast political surprises such as this, but it is interesting how “accidents tend to happen in the line of least resistance”. It should also be remembered that the price is not far from recent and historic lows, which are always an attractive area for long-term buyers once the price starts to bottom out.

Why did the announcement make the market buy the British Pound? There are two theories, not necessarily contradictory. The first is that the election is very likely to produce a stronger and more stable government with a much larger majority in Parliament. The second, more doubtful conjecture is that Prime Minister May will use her mandate to negotiate a softer Brexit than had been backed by her current party representatives in Parliament.

Trump Talks Down the Dollar

During yesterday’s New York session, President Trump did an interview with Fox News in which he said a couple of things that the market took notice of, in addition to the generally increasing level of geopolitical tension regarding Russia, Syria, Iran and North Korea, with the issue of North Korea coming to the fore as we approach the weekend – but that’s another story. The President stated that the U.S. Dollar was too strong, and it fell immediately. He also implied that he was not keen on renewing Janet Yellen’s position as the Chair of the Federal Reserve when it falls due for renewal next year, although he also stated, “she’s not toast”. The President’s exact words were “I do like a low-interest rate policy, I must be honest with you…” which seems interesting in combination with his earlier remarks, almost as if he is trying to influence Janet Yellen’s policy on interest rates with a threat on her job. Of course, the lower interest rates can remain relatively low, the more jobs can be created and the more the stock market will rise, and the President obviously is in great political need of being able to point to concrete progress on the jobs front. The disappointing Non-Farm Payrolls headline number earlier this month may have influenced him into taking this statement. Continue reading…

Trading with Inside Bars / Candles

The Forex market was quiet today, which wasn’t a great surprise as there wasn’t much news scheduled. There was a reasonably large movement late on Monday, and these days the Forex week is often characterized by just two big moves. In fact, traders probably make 90% of their profits from these one or two big moves each week, but that’s a subject for another time. Continue reading…

Geopolitical Tensions

The Forex market spiked during last Friday’s Asian session, when news came through that the United States had conducted a military strike against one of the Syrian government’s airfields. The justification given by President Trump for the strike was the belief held by his administration that an attack on civilians using chemical weapons had been conducted from that airfield a few days earlier. The attack marked the first ever direct military engagement between the United States and Syria. Syria has been a close ally of Russia (and the former Soviet Union) for decades, who supply the Syrian government with their air force equipment and most of their other military equipment too. Continue reading…

Strong Jobs, Weak FOMC

In yesterday’s posting, I anticipated how the market might react to yesterday’s US economic data and the minutes of the most recent FOMC meeting. One key element which I highlighted was how the minutes might be seen to strengthen the likelihood that the Fed will shrink its debt program, which would then decrease the odds of a rate hike. Lower future rates make a weaker U.S. Dollar more probable, logically speaking. Continue reading…

U.S. Data on the Way

There is whole bunch of U.S.-related important stuff on the way before the weekend: today’s releases of the ADP Non-Farm Employment forecast, the ISM Non-Manufacturing numbers, and the FOMC Meeting Minutes (from the recent meeting, it is notes only, no actual decisions to be made). Tomorrow its Unemployment Claims and then on Friday not only the Non-Farms and all the associated hourly earnings and employment rate data etc., but President Trump is meeting the Chinese leader which is an important meeting and the communique will be closely watched for hints of new policies or disagreements that cannot be resolved. Continue reading…