European markets are experiencing gains following Sunday’s vote in France.
In the French parliamentary elections, the far-left New Popular Front secured the most seats but did not achieve an absolute majority, leading to the likelihood of a hung parliament.Furthermore, the much-feared outcome, from an investor’s perspective, of Marine Le Pen’s National Rally claiming an absolute majority has also been nullified, with a 3rd place showing.
While markets had anticipated this outcome, they had expected a right-wing dominance.The potential for more political instability looms as the different parties and blocs try to form a coalition that controls the lower house of the French parliament.The far-left also brings with it concerns over tax plans that could further amplify France’s budget deficit.
The risk of political gridlock could cap future gains for France’s CAC Index and equities in the broader Euro area, represented by the EU50 Index.
From a technical perspective…The EU50 Index is trading above all key simple moving averages (21-, 50-, and 100-period SMAs), highlighting strong short- and medium-term bullish trends.
However, these converging moving averages indicate a sideways pattern, which may persist for as long as this French political gridlock continues to weigh on market sentiment.
Despite today’s sharp upward movement, the Relative Strength Index (RSI) remains in the neutral zone (70 – overbought), suggesting potential for further gains.On the upside, the ~5046.9 level may serve as the next major target/resistance level for EU50 bulls, while the 50-period and 100-period SMAs are poised to provide immediate support.
A successful break above this level may invite bulls to test the 5100 psychological level once more, having exerted strong resistance on the EU50 since late March.
According to Bloomberg consensus, the EU50 is expected to rise by 12.7%, reaching the 5645.16 level within the next 12 months.More By This Author:Gold Targets $2400 As NFP looms. Brent StableUS500 Index Posts Highest-Ever Closing Price EURUSD Volatility Expected Amid Key Macro Releases
