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Euro and CAC 40 Rally After the First Round of French Elections

• National Rally in poll position but unlikely to win an outright majority.
• CAC 40 rallies, Euro picks up a bid.

The first round of the French elections saw the right-wing National Rally (RN) party pick up nearly 34% of the vote, as widely expected, with the left-wing New Popular Front polling just over 28%, and President Macron’s incumbent alliance placing third with around 21%. While the RN has a possibility of gaining the 289 seats needed to form a government, the latest polls show them falling short by around 10 seats at next Sunday’s second round.

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The Euro and the CAC 40 have both opened the week in positive territory, buoyed by the fact that the RN may not get into power. The CAC 40 trades 2.5% higher around 7,685 but remains around 550 points below the May 10th high of 8,262. This week will see tactical voting alliances being formed and broken in France, leading to greater volatility in the CAC 40.

CAC 40 Daily Price Chart

The Euro has opened the week higher, although further gains may be muted ahead of next week’s elections. EUR/USD is currently trading around 1.0765, a near three-week high, but looks likely to struggle to push appreciably higher. This week’s sees some important US data releases and events that will direct the pair, with Friday’s US Jobs Report ( NFP ) the standout.

EUR/USD Daily Price Chart

Retail trader data shows 50.39% of traders are net-long with the ratio of traders long to short at 1.02 to 1.The number of traders net-long is 10.75% lower than yesterday and 25.08% lower than last week, while the number of traders net-short is 21.60% higher than yesterday and 30.87% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/ USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.