The French Election Looms
April 18, 2017
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The US dollar is marginally but universally weaker but we would be careful to draw too many conclusions from the trading activity thus far today for many markets in the West were closed for the Easter Monday holiday; the markets in Germany, France, the UK and Switzerland, for example, are all closed, as are most other European countries. We, however, are open for business here in North and South America. Much of Asia was closed, with Hong Kong closed as Hong Kong continues to “respect” the traditions of the UK that were passed down to the government there.
There had been some US dollar buying late last week against the EUR ahead of the long weekend, and there had been a good deal of Yen buying too, as capital seemed to more readily leave Europe and seek solace and safety elsewhere, fearful that something untoward would develop in the Korean Peninsula, including fears of a possible nuclear weapons test and/or of a missile launch. The “bomb” test has been apparently foregone entirely or at least delayed while the missile launch has proven to be a major embarrassment for Kim’s regime as the missile in question failed almost immediately upon launch.
Greece and France are the focal points in Europe this week, with the French Presidential election’s first round this coming Sunday, the 23rd. As noted below, things have become a great deal more confused regarding the election for only a few weeks ago it THE EUR VS. THE US$: If Volume Follows the Trend…: Note that the volume in recent sessions has been smaller and smaller while the EUR has tended to consolidate the weakness that developed in last March and into the first days of this month, arguing for new lows for the EUR sooner rather than later. THE EAST IS RED… WITH EMBARRASSMENT: North Korea’s military can goose‐ step all it wants, but it has suffered yet another embarrassing failure of its missile program and without question someone will pay for that failure with his/her life. was a foregone conclusion that Ms. Le Pen and Mr. Macron would finish nearly tied with one another and would be 1st and 2nd or 2nd and 1st depending upon the polls cited, and would thus face off against one another in the run-off two weeks later. However, the very far-left of center candidate, Mr. Melenchon has risen sharply in the polls, and even Mr. Fillon… our preferred candidate who had seen his campaign implode around him following the “Penelope-gate” scandals regarding payments made to his wife, Penelope, for work she apparently did not do…has had his numbers increase to the point where the differences between the top candidate and #4 are now less than 5 points. Anyone might win. This is really quite surprising.
The market is now concerned that the strangest of all elections could develop with Ms. Le Pen and Mr. Melenchon facing each other in the run off. We deem that very unlikely, but two weeks ago it was deemed utterly impossible. Now it is simply improbable.
As for Greece, its debts are more and more serious, and the Germans and others in Europe’s north are wholly unwilling to take on more Greek debt or roll over the debts that are coming due early this summer without assurances from the IMF that the Fund will be there also. However, with the US President now wholly antagonistic toward the IMF generally, the odds against an IMF structured relief package for Greece are worsening materially. Suddenly, Europe has to worry not so much about Brexit as it shall about Grexit instead, and if the Greeks “go” then the Spanish, and the Portuguese and perhaps even the Italians shall not be far behind. Simply put, Europe is a confused and confusing arrangement that is worsening by the day.