Summary:

• Macron’s party wins parliamentary elections
• Pro-market president could now introduce reforms
• EURUSD could have ended a shallow correction and has returned above 1.12

President Emmanuel Macron who defeated Marine Le Pen in April and May in presidential elections has now ensured a decisive grip on power as his one year party “Republic on the Move” secured a support of around 31.5% and will have between 415 and 455 seats in a 577-seats parliament. This is definitely a positive result for the euro and for the markets but reactions have been limited so far. 

Macron will have an absolute dominance in the parliament. Source: Bloomberg 

After securing a presidency in May Macron has been a favourite to win parliamentary elections as well. Even during the presidential campaign he obtained a support from many representatives of the Socialists party and after his win he offered posts to some key Republicans. As a result a support for these two major “old” parties dwindled and they’ll see their command on the parliament severely reduced. Republicans who were backed by above of 20% of the French will get only around 90 seats while the Socialists will see their piece of the cake slashed from above 300 to just ca. 25 seats! National Front could introduce Marine Le Pen into the House for the first time but she will be one of very few asa the party is projected to have between 1 and 5 seats. It is important to notice that communist Melenchon received a support close to 19% and could have around 13 seats (a mandate system highly prefers a dominant party, thus such a win for Macron and poor seat results for others). 

Macron will now be able to introduce his promise of labour market liberalization. He wants wages to be agreed at the company level rather than negotiated by unions and wants the companies to have more flexibility of firing and thus also hiring workers. It remains to be seen how successful he is but such reforms would obviously be welcomed by the markets. 

EURUSD could have ended a short profit taking. Source: xStation5 

Moving to the markets, reactions have been moderate but it could be the end of a recent, ECB-fueled profit taking. Let us recall that the ECB did nothing to take euro higher and investors reduced their euro exposure last week. However now we could be looking at a higher low and this could be another pivot higher for the EURUSD.