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As May clings on, Macron 'En Marches' on

Having had the weekend to absorb the events of last week, the only questions being asked are how long Prime Minister May can last, and whether next week’s Brexit talks will start as scheduled.

It would appear that in the interests of expediency she may well survive in the short term, but in the longer term it seems likely that she will be replaced, as soon as is practical. 

The reaction of the pound to recent events has unsurprisingly been negative, but thus far downside has been limited, possibly down to the fact that the form of Brexit as envisaged before the election is now much less likely, largely as a result of the parliamentary arithmetic.

Given recent circumstances, it's quite likely that markets may start to hear more about the so-called Norway option of European Economic Area (EEA) membership, as a stop-gap measure, which while giving access to the single market, can allow for limited controls on immigration.

Even though the pound had a difficult day, the FTSE 100 managed to outperform on the day, closing back above 7,500, while the FTSE 250 also finished the day higher, paring back its earlier losses, though both indices did finish the week lower as European markets in general struggled for gains.

Macron's En Marche sweep the board 

While the political situation in the UK has become more complicated, across the Channel conventional wisdom appears to have been turned on its head, after newly-elected French president Emmanuel Macron’s new party En Marche swept the board in the first round of French parliamentary elections. This is no mean feat for a movement that didn’t even exist two years ago and opens the door for a programme of large-scale reforms, though turnout does look to have been on the low side.

In a week where politics is likely to remain centre stage, markets will also have their eyes on more central bank rate meetings, including an expected interest rate rise from the US Federal Reserve, while the Bank of England and the Bank of Japan are expected to leave interest rates unchanged. The Bank of England in particular will be of particular interest in a week where we’ll get to see a host of reports about the health of the UK economy, including the latest inflation, wages, retail sales and unemployment data.

Forex snapshot

EUR/USD – the November highs at 1.1300 remain within reach, with broader resistance at 1.1370. The current up move continues to remain stretched, which risks a pullback to 1.1170, and possibly even down as far as the 1.1020 area.

GBP/USD – last week’s move below 1.2750 brings the 200 day MA at 1.2580 into view as the next potential target for the pound. We need to see a recovery back through the 1.2830 area to stabilise and reopen the potential for a move back above 1.2920.

EUR/GBP – the move to 0.8860 and the highest levels this year, open up the prospect of a move towards the 0.8920 area. We need to hold above the 0.8720 area for this to unfold or run the risk of a move back to the 0.8650 area.

USD/JPY – having found support at the 109.10 level last week we need to see a close above the 200 day MA at 110.50 to argue for a retest of the 111.60 level.


Heightened market volatility is likely over the election period, which could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

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