UK Election
With the UK Voting exit poll at 2200 last night confirming what all of the polls had been saying in the lead up to Polling Day, while the result was never in doubt, contained within it there will be plenty of surprises on seat changes although short term it is far too early for the markets to be impacted by the verdict of international market investors on the UK and its new government simply because there is nothing much yet in the way of detail for international investors to pronounce on. However it seems unlikely that new Chancellor Rachel Reeves will unveil a blitzkrieg of Liz Truss-like suite of policies, so on this the first morning of a new UK government the UK markets are calm.
GBP/USD 1.2770.
France
Just to recap, after the first round of voting the Right Wing RN won 33% of the vote; not enough for an outright win but enough to frighten the markets which concluded that in a departure from centrist politics either the Far Right or the Far Left would recklessly increase spending. This was followed earlier in the week by a relief rally when the CAC40 bounced back, government bond spreads eased and the EUR steadied and rallied. At the end of the week the thinking is that France will be less likely to see a Far Right victory and more likely to experience a period of political wrangling followed by a divided parliament making it hard for anything radical to be enacted. Government bond spreads have fallen from a high of 85bps over Germany to 69bps. Just two months ago this premium stood at 50bps and then blew out to 65bps after the EU elections. So where will the EUR go? A number of Moving Averages as well as the Relative Strength Index all point to key resistance in the 1.0790 area which for chartists puts a solid cap on the EUR at around 1.08. It will all come down to whether the Far Right does prevail or whether France enters a period of political paralysis after the vote on Sunday which for the benefit of doubt is BIG.
EUR/USD 1.0810.