ForexSpace.com - There has been plenty of forex news reaction to French Socialist Party presidential candidate Francois Hollande’s remarks this morning that, if elected, he will renegotiate the pact for greater fiscal discipline and convergence which European leaders agreed upon in December. Hollande, who leads the polls ahead of this coming Sunday's first round vote, said that austerity shouldn't be the rule for all countries. Budget discipline must go with economic growth, which in turn needs government-led stimulation, he added. As to the impact the Presidential race is exerting on the currency markets, FOREX.com’s head of research, Kathleen Brooks, sees we are range-trading right now, “with the top side capped at 1.32.”

Brooks believe that, along with the results of tomorrow’s Spanish bond auction, the first round of French Presidential elections could be the breaking point for EURUSD. “Anything considered a “bad” result could weigh heavily on the euro and cause it to test that key 1.30 support level,” Brooks concluded.

For his part, Elyse Palace’s current incumbent's re-election hopes have suffered a double setback, firstly with a string of public defections compounded the impression that his tumble in opinion polls is pushing victory beyond reach, followed by the most devastating opinion poll for weeks, which showed Hollande has opened a five-point lead over Sarkozy in the first ballot. Sarkozy attempted to put on a brave face when asked during a TV interview, only to compound problems by being drawn in to saying how a strong euro hurt exporters and should be discussed with the ECB.

The euro promptly dipped against the dollar on the French President’s words, and is currently euro is struggling to gain any kind of upward momentum to help it move towards 1.33. The pair has been trading in a tighter range over the past couple of weeks further highlighting the uncertainty surrounding the currency bloc’s woes and the staggered nature of the US recovery. Craig Erlam, Market Analyst with Alpari UK, said how forex traders cited selling by Swiss investors after Sarkozy’s comments. “The euro hit a session low of $1.3087, falling around 0.3 percent on the day,” Erlam said. Meanwhile, Neal Kimberley, (pictured) FX Analyst at Thomson Reuters says he’s not yet sure a French Presidential election victory for Mr Hollande is priced in.

“Mr Sarkozy’s poll rating seems to be slipping. Traders may become wary that at least some of Mr Hollande’s rhetoric might translate into policy; after all, Francois Mitterand was not shy in adopting radical policies in the first few years after his 1981 win. We cannot also know how a Hollande victory would affect the Franco-German relationship,” added Kimberley. “I hear some macros are buying 1.25 downsides in eurusd whose expiries are timed to coincide with the result of France’s Presidential second round.  If nothing else, it shows how at least some are thinking.”

Looking a potential market moving events along the road, Kimberley’s colleague at Reuters, forex specialist Jeremy Boulton reminds us how April 25 sees a massive French Government bond redemption of 19.6 billion euros. “With more than 15 billion of coupons attached, the maturity could prompt repatriation flows,” says Boulton. “Elevated EUR.JPY levels and renewed EZ risks may make such a course all the more attractive to Japanese investors.”

Then, of course, there’s a 15 billion Spanish bond redemption/coupons on April.30, followed by 3.6 billion euros of BTP coupons on May 1, and a 12.2 billion euro CTZ maturity, which, as Boulton conclude “may also weigh on the euro, and may make for a lively month end!”

Drew Hillier. Editor