Week Ahead: FRA40 braced for French elections

• H2 kicks off with French/UK elections, ECB forum & NFP

• FRA40 ↓ 5.4% since Macron call for snap election

• National Rally currently leading polls

• Index bearish on D1 but RSI near oversold

• Key points of interest – 7700, 200-day SMA, 7470

An exceptional list of high-risk events may rattle global markets in the week ahead!

The second half of 2024 kicks off with elections in France and the United Kingdom, to the ECB forum and US jobs report among other key data:

Sunday, 30th June

• CN50: China manufacturing & non-manufacturing PMIs
• USDInd: New York Fed President John Williams speech
• FRA40: First round of French legislative elections

Monday, 1st July  

• CN50: China Caixin manufacturing PMI
• AU200: Australia retail sales, Melbourne Institute inflation
• EU50: Eurozone Manufacturing PMI
• FRA40: France Manufacturing PMI
• GER40: Germany Manufacturing PMI, CPI
• UK100: UK Manufacturing PMI
• US500: ISM Manufacturing

Tuesday, 2nd July

• AU200: RBA meeting minutes
• EU50: Eurozone CPI, unemployment, ECB President Lagarde speech
• US500: Fed Chair Jerome Powell speech

Wednesday, 3rd July

• CN50: China Caixin service PMI
• EU50: Eurozone Services PMI, PPI
• USDInd: US FOMC minutes, ISM services, initial jobless claims, Fed speak

Thursday, 4th July    

• GER40: Germany factory orders
• EU50: ECB meeting minutes
• UK100: UK general elections
• US Markets closed – Independence Day holiday

Friday, 5th July

• CAD: Canada unemployment
• EU50: Eurozone retail sales
• FRA40: France trade, industrial production
• GER40: Germany industrial production
• SG20: Singapore retail sales
• TWN: Taiwan CPI
• US500: US June NFP report

FXTM’s FRA40 demands our attention due to the first round of French parliamentary elections over the weekend.

The FRA40 tracks the underlying CAC 40 index, which represents the 40 largest companies listed on the Paris Stock Exchange.

The lowdown…

The French political scene was thrown into chaos on June 9th after President Macron unexpectedly dissolved parliament following his defeat by the far right in EU elections.

Since then, the FRA40 has tumbled as much as 6.5% and heading for its biggest monthly loss in almost two years.

The bigger picture

In a two-round process on 30th June and 7th July, France will go to the polls to elect a new parliament after Macron called for snap elections.

If one candidate gains more than 50% of the vote, representing at least 25% of registered voters, they automatically win the elections. But this is an unlikely outcome given the current polls.

Any party that has obtained more than 12.5% of the vote can advance to the second round.

• National Rally (far-right): 36%

• New Popular Front (left-wing): 29%

• Renaissance and allies (centrist): 21%

Note: President Macron belongs to Renaissance and allies.

Taking a deeper dive

President Macron will remain president regardless of how the election plays out.

However, he could be stuck with a prime minister and a government from a different party. This is the crux of the matter, especially when considering how unaligned Macron and the National Rally are on economic policies.

What does this mean?

This snap election could not have come at a worse time for the French economy.

Just last month its credit rating was downgraded by S&P Global Ratings, while the economy continues to experience subdued growth. If Macron is rendered powerless and unable to push reforms, this could mean more trouble for the French economy as political uncertainty becomes a key theme.

How will the elections impact the FRA40?

Investors have already been given a taste of how political jitters can rock the FRA40.

• A shock outcome that sees an absolute majority for either the National Rally or New Popular Front could send the FRA40 tumbling as uncertainty over France’s policy future intensifies.

• An outcome where all 3 parties make it into the second round of voting may also trigger volatility.

Technical outlook

The FRA40 is under intense pressure on the daily charts with prices respecting a bearish channel. Although the candlesticks are trading below the 50, 100 and 200-day SMA, the Relative Strength Index (RSI) is signalling that prices are approaching oversold levels.

• Sustained weakness below the 200-day SMA, may signal a decline toward 7470, 7400 and 7290.

• Should prices push back above the 200-day SMA, bulls could challenge 7700 and 7790.