The French elections are less than a month away, and so far, the uncertainty is just increasing by the days, which likely to lead to higher volatility ahead.
The recent polls show that the nationalist Marine Le Pen is promising to hold a referendum on taking France out of the Euro. Investors are focusing on the process, and more importantly, they are concentrating on the polls.
In the meantime, the uncertainty is rising as the nationalist candidate it calling for a referendum to leave the Euro. However, even if she manage to win the election, there is a long process to hold such referendum.
How Strong Is Le Pen?
If she wins, the president in France would have no control on the parliament, especially that the National Front party has only two lawmakers in the national assembly and no declared allies who might help to form a coalition. Therefore, it would be hard to hold such referendum.
Yet, the risk is always there. Who thought that the Brexit would ever happen, even after the referendum, the world was surprised with the outcomes. Therefore, you need to keep that possibility alive.
CAC 40 Is Not Worried
If we look at the CAC40 index, it has been rising steadily since Q2 of last year, breaking key resistances at the end of last year which used to be around 4600.
Such break has led to a notable rally, which lasted until today, reaching as high as 5000, which represents a psychological resistance.
Currently, the index is not showing any signs of fear or uncertainty, however, the volume has eased for the past few weeks compared to the same period of last year.
For the time being, the technical indicators are overbought, which increases the possibility of a short-term correction ahead of the elections, especially that the 5000 level is a psychological resistance and unlikely to be broken easily.
Therefore, buyers are likely to stand aside, for the time being, to wait for the election outcomes before deciding of the next trade.
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