It was a historic day in France on April 23, 2017, as the nation’s citizens headed to the polls to place their ballots for round one of the Presidential election. According to the New York Times, “It is the first time in 59-year history of France’s Fifth Republic that both of the final candidates are from outside the traditional left-right party structure.” The citizens of France have chosen Emmanuel Macron and Marine Le Pen to go to a runoff to determine the next president. Of utmost interest to investors around the world is the disparity between the two leaders’ views on the European Union. Current polls are giving the edge to Macro, who is pro-European Union, which sent the value of the euro and financial markets in Europe and around the world higher. In this article, we’ll take a look at the charts and try to determine what assets U.S. investors may be watching heading into the final vote on May 7. (For more, see: France's Macron and Le Pen Advance to Next Presidential Round).
iShares MSCI France ETF
One of the most popular exchange-traded funds utilized by North American investors for gaining exposure to France is the iShares MSCI France ETF (EWQ). As the name suggests, this fund provides investors with exposure to large and mid-sized companies in France. Specifically, the fund is comprised of 76 holdings and has total net assets of approximately $362 million. Taking a look at the chart below, you can see that investors are clearly bullish based on the gap. This strong surge on higher-than-average volume suggests that the momentum could continue for days or weeks to come. However, active traders could choose to remain patient and try to time an entry closer to major pivot point to risk a loss in the event that the bears close the gap and send prices back toward the March highs. (For related reading, see: Support for Euroskeptic Le Pen Grows in France).
Vanguard FTSE Europe ETF
Investors looking to profit from the rising pro-European Union sentiment may choose to turn their attention to the Vanguard FTSE Europe ETF (VGK). This fund is popular amongst retail investors for gaining exposure to a broad basket of European equities. Taking a look at the chart, you can see that the pattern looks similar to the one shown earlier. The strong breakout has captured the attention of active traders around the world, and many will be placing trades that assume the momentum can continue. Based on the recent crossover between the 50-day and 200-day moving averages earlier this year, we are still in the early days of a long-term uptrend and the May 7 results could be the catalyst needed to ensure that the uptrend can continue. (For more, see: 3 Ways To Trade The Rise In European Volatility).
iShares MSCI Europe Financials ETF
The financial sector in Europe is also one of the benefactors of recent news and taking a look at the chart of the iShares MSCI Europe Financials ETF (EUFN), it appears as though the leg higher could only just be getting started. Active traders will use the clear breakout above the dotted trendline as a buy signal, and most will likely protect themselves from a significant pullback by placing stop-losses a few percentage points below $21.11. Based on this chart, the bulls are clearly in control of the momentum, and it will be interesting to see if they can hold on through round 2 on May 7. (For related reading, see: David Tepper Is Betting on Both Sides in the French Election).
The Bottom Line
Based on the charts of the ETFs shown in this article, it is clear that the Euro bulls have won round one. At this stage, we’d expect active traders to continue to watch the patterns shown above and continue to trade them through round two on May 7. (For more on this topic, see: Vive La France! Key Indicators Show Less Frexit Fear).
At the time of writing, Casey Murphy did not own any of the assets mentioned.