CAC Rallies After 1st Round in General Election

French stocks rallied this morning with other Eurozone indices, but the shadow of the general election result remains.

Marine LePen’s party National Rally obtained the most votes in the first round of elections, with polls placing her party within striking distance of winning an outright majority in parliament.

Macron is now considering pulling out of some electoral colleges to avoid a 3-way race where his party has little chance of winning the second round. He’s hoping that his voter will rally around the alternative to Marine LePen.

However, the second place in the first round went to the far-left alliance led by Melenchon’s France Unbowed party. The party is accused of harboring antisemitic views, which have been denied by Melenchon.

The second round could lead to an out-right majority in parliament for Marine Le Pen, which would oblige Macron to appoint the prime minister from her party. The event would create a disconnect between the president and the legislative branch.

But the final round of votes could also leave the National Rally with a win but without an outright majority. This would leave Macron’s party to attempt an alliance with the far-left alliance led by Melenchon.

Either scenario might make reducing the national debt and keeping a corporate friendly environment harder. Moody’s has already stated that they may place their outlook for French government bonds to negative.

Technical View

The day chart below for the CAC shows a bearish trend with the market below the Ichimoku could following a series of lower lows and highs. The previous low from June 14 seems to have created a base after a second touch on Friday.

Today’s candle is a bullish one but seems a take-profit reaction after the latest slide from its all-time high of 8,259. Today’s candle found resistance at 7,721 (green line), which has been tested twice before.

The last 10 candles have remained within the range of 7,460 (black line) and 7,721 (green line), which are now the immediate support and resistance levels. The next support is at 7,281 (orange line) and the higher resistance is at 7,854 (blue line).

CAC
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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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