CAC 40 jumps higher then reverses as French election results come in

French citizens headed to the polls on Sunday for the first round of voting on who their next president will be – and the result was not good for incumbent Emmanuel Macron. Both the hard right and hard left have pushed Macron’s party into third place and provisional projections suggest Marine Le Pen’s National Rally has the chance of an overall majority after next Sunday’s second round. 

The reaction in markets has been interesting. The French CAC 40 jumped higher at the open. This may be because, despite Le Pen’s possible win, the result was slightly worse than expected, giving investors a slight relief. Her eurosceptic views and opposition to globalisation caused investors to get nervous after the European elections that forced the snap election to be called. A possible coalition between Macron and the forces to his left could be seen as a better option. Nonetheless, the result of the first round of voting has seen political uncertainty remain, at least for the next week. 

Because of this, the CAC 40 has been dropping this morning, having now almost fully closed the gap from the open. 

CAC 40 daily chart

_{Past performance is not a reliable indicator of future results.}

The moving averages are tilted lower with the 50-day now crossing below the 100-day, a sign of bearish momentum. It will be hard for the index to regain a bullish bias this week as uncertainty will likely remain. The focus will be on how likely it is that the far right will win the election next Sunday. The more likely, the more bearish pressure we could see on the DAX 40. Support at $7,460 could be tested by sellers. 

So far, other European equities have avoided a selloff. The gains from the initial relief have been reversed in the DAX 40 and EURO STOXX 50 but the bias remains tilted slightly higher. In the FX space, the euro also jumped higher at the open showing relief after the smaller-than-expected margin obtained by the far right. EUR/USD has broken away from its consolidation range from the past few weeks, finally regaining the 1.0750 mark. The RSI is pointing higher once again as it attempts to break the midline but there is likely to be some resistance up ahead as EUR/USD faces a confluence of its key moving averages. The weakness in the US dollar over the past few sessions has also helped the pair move higher. 

EUR/USD daily chart

_{Past performance is not a reliable indicator of future results.}