As we look towards the first round of the French vote this weekend it is becoming apparent that markets believe that political outsider Emmanuel Macron will make it through to the final vote in May.

The only unknown being as to who he will face in the run off.

Currently Mr Macron is in the lead in the polls at 23.6%, with Marine Le Pen second on 22.5%, and Francois Fillon and Jean-Luc Melenchon in joint third, around 19%.

While this is the most market friendly option and is likely to prompt further gains in French stocks as well as the euro, it only merely serves as the best option amongst a number of not particularly good options, which means any euro rally is likely to prove short lived and shallow, towards the recent peaks just above 1.0850.

For all his market friendly rhetoric Emmanuel Macron is unlikely to have any support in Parliament in terms of MP’s, which means he will have to reach out across the political divide. This lack of support or party machinery is likely to make him a lame duck President, only able to affect minor tweaks or changes. Certainly nothing like the promises he has made in his election campaign.

Most of the scenarios being modelled have Macron facing off against Le Pen or Melenchon and the general consensus is he should be able to see them off in the final vote.

The outlier is if he fails to make the final vote with Melenchon and Le Pen facing off against each other.

This would be an undesirable outcome given they are both outside the political mainstream and the policies of both are perceived to be market unfriendly, as well as euro unfriendly. This unexpected scenario could see the euro drop sharply towards the 1.0650 level and probably lower.  

Heightened market volatility is likely over the election period, this 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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