EUR/USD: Asymmetric Risk But Short Preferable Into French Elections

The euro has many forces moving it. The big political risk is the French Presidential Election. What can we expect for EUR/USD?

Here is their view, courtesy of eFXnews:

EUR/USD downside risks remains ahead of the French Elections, says Bank of America Merrill Lynch FX Strategy.

In that regard, BofAML’s baseline does not include a Le Pen victory and as such still likes EUR crosses in the medium term, particularly EUR/JPY.

However, BofAML sees a Le Pen victory as a low probability but very high impact market event.

“If Le Pen wins, we believe that markets could price a breakup of the Eurozone immediately, rather than wait for a referendum on the Euro in France. Although the Euro could strengthen somewhat if Le Pen loses the election, we would expect it to weaken substantially, if Le Pen wins,” BofA argues.

All in all, BofA believes that the risks are very asymmetric and recommends staying short EUR/USD ahead of the French elections.

EUR/USD is trading circa 1.0612 and EUR/JPY is trading circa 121.71 as of writing.