Brokers are activating measures to curtail market exposure for themselves and for their clients in the run-up to the French presidential election. The event risks have materially declined in recent days as Macron has picked up in the polls. The far right’s candidate, Marine Le Pen, is now trailing behind him in the first round of the polls, but runoffs are resoundingly against a Le Pen presidency.
The biggest risks for the euro are stemming from the rise of far left candidate Jean Luc Melanchon, who is the second eurosceptic running in the election. With the candidates all too tight, there is one outcome that is particularly worrisome for financial markets – a runoff between Mrs. Le Pen and Mr. Melanchon.
The latest Opinionway poll puts Macron in first place with 23 percent of the vote, Le Pen with 22 percent in second, followed by Fillon with 21 and Melanchon with 18 percent. A runoff between Le Pen and Melanchon does not seem very likely. The other runoff scenarios are easily won by Macron. Despite this, the euro hasn’t marked any new gains since Thursday, when Trump administration officials highlighted that they are committed to tax reform.
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Indices are a Bigger Worry for Forex Brokers
Forex and CFDs brokers that are anticipating increased volatility around the event introduced new measures to tackle prospective volatility and illiquidity. The companies are focusing a lot of effort on indices, rather than FX, due to the more volatile nature of the former asset class.
A number of firms have informed their clients about prospective changes to their trading conditions, raising margin requirements on both FX and indices. The measures for indices are more pronounced, and the risks are bigger due to the run up in European stocks in recent weeks.
Concerted efforts by retail and institutional brokers are to be expected in the aftermath of sharp volatility, such as that experienced during the UK Brexit referendum as well as the US election last year.