How EUR Might React - UOB

Lee Sue Ann [email protected] Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research

Flash Notes

Friday, 21 April 2017

French Elections Round One: How EUR Might React

French voters will go to the polls this Sunday (23 April) for the first round of the French presidential elections. The race remains tight and there is significant uncertainty about which two candidates will make it through to the second round. However, recent polls still indicate that the two front-runners are the independent Emmanuel Macron and the far-right Marine Le Pen.

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What Are Polls Showing?

HARRIS INTERACTIVE (18-20 April)

Macron 24.5% Le Pen 21% Fillion 20% Mélenchon 19% Hamon 7.5%

Sample size = 962

BVA (18-19 April)

Macron 24% Le Pen 23% Fillion 19% Mélenchon 19% Hamon 8.5%

Sample size = 1427

ELABE (16-17 April)

IPOS (16-17 April)

IFOP FIDUCAL (13-17 April)

OPINIONWAY (7 April)

Macron 24% Le Pen 23% Fillion 19.5% Mélenchon 18% Hamon 8%

Sample size = 1438

Macro 23% Le Pen 22.5% Fillion 19.5% Mélenchon 19% Hamon 8%

Sample size = 11601

Macron 23% Le Pen 22.5% Fillion 19.5% Mélenchon 19.5% Hamon 7.5%

Sample size = 2796

Macron 22% Le Pen 23% Fillion 20% Mélenchon 17% Hamon 9%

Sample size = 1500

Source: Various sources, UOB Global Economics & Markets Research

The voting booths will be opened from 8am CET and will close at 7pm CET outside the big cities of France, or 8pm CET in the big cities. If past elections are any guide, the first exit polls are likely to be released soon after. There will also be official estimates of turnout at 12pm CET and 5pm CET on the day. By 10pm CET, preliminary results will have emerged, along with projections for which two candidates are likely to be in the second round. Some 80% of results should be in by 11pm. Hence, the period from 10pm to 11pm CET (5am to 6am SGT on Monday, 24 April) could be the most crucial. The outcome is too close to call. It is possible that at least one extremist will reach the 7 May runoff. That both finalists will be populists — one from the radical left and one from the radical right — also cannot be ruled out. The markets preferred outcome would be one involving Macron and Fillon. The worst-case outcome, undoubtedly, would involve Le Pen and Mélenchon. Judging by recent polls though, the most likely outcome is one where Macron and Marine Le Pen go through to the second round. This is also our base-case scenario. We are, nonetheless, mindful about how unreliable opinion polls can be, and that a large chunk of the voting public remains undecided. This group of undecided voters can swing votes around. On the next page, we have identified four possible scenarios, accompanied with the probability as well as the likely impact on the EUR. We think it will probably need both Le Pen and Mélenchon to get through to the second round to do the EUR any significant harm.

Flash Notes Friday, 21 April 2017

1 Page

Scenario

Probability

LE PEN vs MACRON This is the scenario that has been dominant for many weeks now since Fillion got into trouble.

55% Medium to High

This is also our base-case scenario.

LE PEN vs MÉLENCHON This is the latest scenario that is worrying, and is likely to be the most market-moving outcome.

25% Low to Medium

LE PEN vs FILLION This used to be the baseline scenario until early this year.

MACRON vs FILLION This scenario would come as a huge surprise, but would be the most marketfriendly one.

Impact on EUR Upside bias EUR/USD could retest the 1.09-figure, though we don’t see the pair trading significantly higher.

Negative A much lower EUR/USD, with risk of breaking below the yearto-date-low of 1.0340.

15%

Downside bias

Medium

EUR/USD to see some pressure towards the 1.05-levels.

5%

Positive

Very low

Extension in EUR/USD towards the 1.10-region

Source: UOB Global Economics & Markets Research

Other References: 12 April 2017 - Counting Down To The French Presidential Elections 15 February 2017 - French Presidential Election: A Quick Background

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