The final round of the French Presidential election has been all over the news, and it seems like it’s one of the main events that the markets are following now. The first round of the French Presidential election is over with, and Marine Le Pen will face off with Emmanuel Macron. Now, Macron was in the slight lead in the first round, and pollsters are now placing an abnormally high probability on a Macron win. However, pollsters have gotten it wrong before, just look back to November 2016, during the U.S. Presidential election. That in mind, there are some exchange-traded funds tracking the price of the euro that could see heightened volatility before and after the French Presidential election results.
Guggenheim CurrencyShares Euro Trust ETf
The Guggenheim CurrencyShares Euro Trust (NYSEARCA: FXE) is one of the largest ETFs tracking the euro, with over $300M in total net assets, as of April 28, 2017. The ETF aims to track the price of the euro, and therefore, could experience some volatility before and after the final round of the French Presidential election. We saw the euro rise significantly after the first round of the French Presidential election, after Macron led. In turn, FXE was up 1.75% during that week. However, it’s a tossup in the final round, we really don’t know what who will win. “We could see some traders selling FXE ahead of the election to take some risk off in the event that Le Pen wins,” trader Jason Bond stated.
The ProShares UltraShort Euro
The ProShares UltraShort Euro (NYSEARCA: EUO) is an inverse leveraged ETF that aims to track the daily performance of the U.S. dollar price of the euro. More specifically, EUO aims to provide two times the inverse of the daily performance of the USD price of the euro. The ProShares UltraShort Euro is a highly risky ETF and should only be considered by highly risk tolerant traders for a one-day period. Now, due to the time decay of leveraged ETFs, the expected performance tends to deviate if the holding period is greater than one day. Therefore, traders who are extremely bearish on the euro and believe it could fall against the U.S. dollar, should only consider EUO for one day.
EUO was down over 3% on the week that the first round of the French Presidential election results release. This is primarily due to Macron’s lead over Le Pen. Le Pen is looking to take France of the EU, which could increase systemic risk. Additionally, Le Pen believes the “euro is dead,” and if she does surprise pollsters, the euro could drop significantly. Consequently, EUO could rise heading into the election because traders may be placing bets or hedging against a Le Pen win.
The Bottom Line
The French Presidential election could weigh on global stocks and the euro. There’s some uncertainty heading into the event, despite what pollsters are saying, Le Pen still stands a chance against Macron. In turn, a Le Pen could significantly hurt the euro.