Originally published by guppytraders.com
How safe is the Euro, and the associated question, who will win the French Presidential election? The two answers are closely related and are answered using two methods.
One method of polling remains exceptionally accurate. Its taken almost every day and the participants back their opinions with cold, hard cash. These are the major market indexes and they show that the French market was not particularly worried about the outcome of the first round of French election. Nor are they worried about the outcome of the next round and this suggests a Macron victory, although like many recent elections the margin may be very narrow.
It was clear several weeks ago that the markets did not expect any significant change and that a Le Pen and Macron Presidential run-off had already been baked into the cake – factored into market activity. The index behaviour of the CAC suggested the markets were comfortable with this outcomes. The current index behaviour confirms the market is comfortable with either candidate although there are other factors which suggest the market anticipates a Macron victory.
The French CAC chart shows a strong well supported trend with good Guppy Multiple Moving Average (GMMA) indicator behaviour. Investors – shown by the long term group of averages – are not worried. The wide separation shows strong trend support. The traders – shown by the short term group of averages – are also very confidence it will be business as usual after the elections. The short term group of averages is also widely separated showing strong confidence in a non-disruptive election outcome.
The breakout above resistance near 5250 is very bullish and does not indicate a Euro exit. This breakout is a relief reaction so there is a good probability the market will retreat and use 5250 as a support and consolidation level prior to a continuation of the uptrend.
Although Le Pen talks of leaving the Euro the French and German markets suggest this is unlikely to happen. The French public also believes this is a low probability. If they thought otherwise then we would already see a run on the banks as people took their money out before it was threatened with devaluation by a Euro exit.
Investors would not wait until the calling of a referendum on leaving the Euro. Once it became clear that Le Pen was the next President there would be a run on the French financial system. The French banks would be essentially insolvent the next morning.
None of this has happened, and this suggests that Macron will be the next President of France. The Euro is not dead but the Euro short trade is.
The CAC chart signals strategic trading opportunities which can be exploited using the ANTSSYS method to trade the consolidation behavior.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.