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Analysis

EU Elections 2024:
How to trade the financial markets

Disclaimer: This article is an educational guide to CFD trading and the financial markets and should not be considered as advice. Trading CFDs is high risk. Always ensure you understand the potential risks and rewards associated with trading before you trade.

European parliamentary elections

The next European parliamentary elections are scheduled for 6 to 9 June 2024. Each member state of the European Union will run separate elections across this three-day period, and the winners are assigned several MEPs based on the population of each state.

 

How the EU elections work

All the elections take place at the national level with a national list, and whichever parties meet the threshold to be assigned an MEP will be sent to the European parliament. Here, they will try to join or form larger international blocks.

The expected performance of each block will impact global markets, especially the Euro and European stocks, but unlike the upcoming US Presidential Elections or UK General Election, the European parliamentary election is not typically a major market event. Even so, key markets will see increased volume and volatility in the run up to, during, and immediately after the election.

 

“The period of maximum volatility will come during the multi-day election itself and especially after results are announced.”

 

Trading the EU elections: key markets to watch

Naturally, the most affected markets will be European stocks, with key stock indices in Germany and France products to watch. In the currency markets, the Euro may experience additional volatility, especially if the result is indecisive or established centre parties lose out to the fringe, resulting in Euro losses.

Price movements in the Euro may be complicated by the two largest EUR pair currencies – USD and GBP – as both have elections in 2024. Because of the relative stability of Europe compared to the situation in the early 2010s, bond markets will probably not see massive swings, whatever the result. Analysts expect any volatility from the EU elections to be a fleeting event, so CFD traders looking to profit off market moves should take this into consideration when placing a trade, and have the right risk management strategy in place.

 

Election trading strategies

Increased volatility is an opportunity for CFD traders, so we follow elections closely. The period of maximum volatility will come during the multi-day election itself and especially after results are announced, so you may want to enter positions around this time. Which direction volatility takes will depend on the results of the vote, and since there are a few competing factors pushing prices no one can predict market reactions with certainty. Even so, a few potential outcomes are considered below.

Potential results

As described in the overview of the EU Elections, major gains by the ID group are forecast by pollsters and could disrupt the Euro as the group contains many Eurosceptic parties. In the run-up to the election, the centre-right EPP has indicated it may be prepared to work with the ECR, another right-wing grouping projected to perform well, to form a functional majority after the election.

This makes the prospect of a shock result where parliament cannot function or that forces the formation of an unwieldy coalition much less likely, though markets will still be looking to see how well centrist parties perform. Much better-than-expected results for ID or the Left grouping could spook markets, resulting in Euro losses and stock volatility.

How to trade an election

There are two main ways to trade political events; the first works by taking out positions based on the polling numbers in the run-up and positioning yourself in front of the expected market reaction (this is by no means an exact science). The other is riskier and requires independent research, which involves taking out a contrary position based on your personal view of the potential outcome or reaction.

In both cases, the two variables are the results compared to opinion polls and the market reaction to whatever outcome occurs. Though final results usually come within the margin of error of pollsters, there have been major exceptions – and with such a large and complex election, polling could be less accurate than usual. Any significant gap between polled and actual results will result in significant market volatility.

Trading elections: market reaction

The second variable is the market impact of each result, which can never be assumed with confidence. We’ve looked at some likely market impacts above, but these are often difficult to predict and should be taken with caution. Sometimes markets ‘prefer’ any decisive result to a narrow one, and some long-term investors will look to enter positions after elections, potentially causing a short rally whatever the result. The eventual market impact when results are announced is often partially or completely reversed in the following days, creating many opportunities for agile CFD traders to enter and exit positions.

 

Conclusion: actionable points for traders

Predicting election results and their market impacts is inherently uncertain, and CFD traders need to understand markets can always surprise them. But some reasonable basis points to look out for would be Euro weakness following a very strong showing for ID, and Euro gains if the EPP outperform. A strong showing by the Green / EFA list could cause downward pressure on industrial stocks, impacting German manufacturers in particular. Bonds may also experience volatility, and their price will have an inverse relationship to index and EUR movements.

All these markets are likely to see brief spikes of volatility followed by a correction, since the overall political impact of the election is expected to be small.

FAQs

How will EU parliamentary elections impact financial markets?

Election impacts are uncertain, but the 2024 Euro elections may cause volatility in European stocks and the Euro, especially if fringe parties perform well or results are indecisive.

What are key strategies for trading during the EU elections?

Traders can either open positions based on polling data before the election or take contrarian positions based on personal predictions of the outcome. Either way, you will need to make assumptions about 1) the results and 2) the broader market’s reaction to any result, making this type of trading inherently unpredictable.

Which indicators should traders watch during the EU elections to see how markets are reacting?

The most important assets to watch will be the EUR/USD and EUR/GBP, which will show the broad positive vs negative response of the market to the eventual result. European stock indices will likely follow the Euro, while bonds – if they move at all – will show an inverse price response.


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