Uncertainty Ahead of French Election

Polls show a small gap between the front runners with National Front leader Marie Le Pen tied with Fran├žois Fillon. A populist win would be a threat bigger than Brexit to the Euro and the EU. Frexit is a possibility along with dropping the Euro and moving to a “nouveau franc” to make exports competitive. National debt would convert to the new currency which would likely be a default. There is high anxiety about the election since polls were wrong about the US Presidential election and Brexit.

The Euro has been on a one month slide against the Japanese Yen. This indicates that Japan is a safer economy than Europe. The Euro recently recovered against the Yen, but is facing resistance. This may change if Marie Le Pen begins to slip in the polls.

EUR/JPY Chart
EUR/JPY

 

There has also been as safe flight to the US Dollar over the past month.

EUR/USD
EUR/USD

Along with increased demand in the 10-year Treasury Note.

US-T 10Y
10 Year US Treasury

US companies doing business in France have FX exposure the Euro and potentially high impact exposure to introduction of a devalued currency. US companies may wish to insure accounts receivable against further erosion through forward contracts, futures, or options.