Euro to Pound Exchange Rate in Process of Forming Complex ‘Head and Shoulders’ Pattern

After the non-event that was the triggering of Article 50 eyes are turning elsewhere for the next ‘big thing’.

And as the media-currency complex loves politics as an explainer of foreign exchange market moves it makes sense that France should start to fall under increased scrutiny.

The popularity of National Front leader Marine Le Pen has markets and commentators fretting that should she win France will be heading for the European Union’s exit door.

“The focus is slowly turning away from Brexit to a potential Frexit with upcoming French elections in April,” says Fawad Razaqzada, an analyst with brokers

The implications of a Frexit are however much more serious than Brexit owing to France’s membership of the Eurozone; leaving the currency union would shake markets to the core as we have noted recently.

“Even after the defeat handed out to Geert Wilders in the Dutch election, it is far from certain that Le Pen will fail,” says Dr Jörg Krämer at Commerzbank in Frankfurt. “Her voter base is highly motivated, and it is also unclear whether conservative voters would really vote for former socialist Macron in the run-off.”

In the near-term, the Euro exchange rate complex would likely come under pressure even were polls to show that Le Pen were making fresh progress.

“Given this uncertainty, the Euro could come under pressure in the coming weeks and months,” says Razaqzada.

That said, for now odds of a Le Pen win are receding, Oddschecker now expects a 24% chance of victory for Marine Le Pen in the French Presidential election in May.

Nevertheless, a 24% chance is still a chance and a number of analysts believes the EUR/GBP may start to ease as speculators potentially reduce their record net short positions in GBP and increase their bearish bets on EUR.

“However the long-term outlook on GBP remains uncertain, so we are only expecting – at this stage – a moderate GBP recovery relative to EUR,” says Razaqzada.

Political Risks?…

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