FRA40: Steady as France faces hung parliament

• France’s Left-Wing coalition bags surprise victory

• No outright majority means hung parliament outcome

• FRA40 bounces from 200-day SMA

• Key levels of interest – 7790, 7700 & 200-day SMA

FXTM’s FRA40 moved higher on Monday as markets digested the unexpected result of France’s legislative election.

The left-wing coalition won the largest amount of seats but could not secure a majority – resulting in a hung parliament outcome.

• New Popular Front (left-wing): 188 seats

• Macron’s centrist alliance (centrist): 161 seats

• National Rally (far-right): 142 seats

Note: 289 seats are needed for absolute majority

With no party close to securing a majority, this could spell months of turmoil and political instability.

But this also means that neither the left nor right party can implement their plans into action, without support from others to pass legislation. This could cool fears around more spending and deeper deficits at a period where France remains under the European Union’s scrutiny for breaking budget rules.

Looking at the charts, the FRA40 bounced from the 200-day SMA on Monday morning with prices trading above 7700 as of writing. Despite the political gridlock down the road, the overall market reaction seems positive.

• Still, bulls will need to secure a solid daily close above 7700 to encourage an incline toward 7790 and the 50-day SMA at 7900.

• Should 7700 prove to be a tough resistance, a decline back toward 7470 and 7400 could be on the cards.

Note: FRA40 tracks the underlying CAC 40 Index