The World Awaits France's Decision. Quiet Markets

 

USD

The U.S. Dollar is trading in familiar ranges ahead of a crucial weekend when the future of the European Union is at risk. Two candidates on opposite ends of the political spectrum will face off and each of their visions could not be more different. Emmanuel Macron sees the need for open trade, open borders, and transparent global cooperation in the fight against extremist terror. On the other end, Marine Le Pen comes from a family with a stronghold in far right politics and is seeking to make France independent from EU obligations as well as abandoning the Euro.

Markets are pricing in a Macron victory, but 2016 left us all traumatized with its inaccurate polling so let the voters decide during the moment of truth. We foresee a tight election Sunday.

The Employment Situation in the U.S. revealed decent figures this morning, but with some downward revisions for the month prior. Change in Non-farm Payrolls exceeded 200K in April, but the awful March figure of 98K was lowered to just 79K. The Unemployment Rate is now lower at 4.4%, which could also be a sign of less participation by the jobless population in seeking work. Overall, data for the U.S. has dipped recently, so the greenback has a bit of a comeback to mount as well as the fundamentals behind it.

 

EUR

The Euro, which still exists, is trading along its recent levels and will be highly vulnerable as the Asian and European trading sessions take in the results of the presidential election before our Monday starts in North America. It has been a pleasure following this currency’s ebb and flow throughout the years. All kidding aside, it is hard to believe that in such a fragile state of politics in France that Macron could run away with a huge triumph.

We believe Le Pen carries a lot of momentum that some are wishfully denying and her impact on voters may be underestimated. Sunday will be an interesting referendum on how a very important part of the EU feels about the future of organized global institutions, open immigration, and the need for further sovereignty.

 

GBP 

The GBP has been quiet this week as focus on France and American politics stole headlines. Thus far in 2017, Sterling has appreciated by 7.4% based on Prime Minister Theresa May’s determined stance on Brexit and surprisingly good data. Once this weekend cruises by, Brexit shall be a point of discussion once again swaying the market one way or the other. A two front war for the EU in which Brexit and “Frexit” are now a possibility and there is not telling what something like that could do to the major currencies.

Pound strength is merited currently, we must admit at this point, on the resilience of indicators after the shock last year and the lowering of interest rates by the Bank of England. Nevertheless, the EU is willing to make a hard Brexit even worse by announcing yesterday plans to limit European banking functions in London by asking clearing houses to move outside of the UK as part of any deal.

This is a major slap to the UK, which proudly boasts about London being the financial capital of the Western world after New York City. Let the financial warfare begin. GBP could be more vulnerable than it seems at the moment.