The French elections have just become more complicated with the shooting in Paris. What are the risks of this event on EUR/USD? Here is an opinion from Bank of America Merrill Lynch:
Here is their view, courtesy of eFXnews:
Bank of America Merrill Lynch FX Strategy Research notes that heading into the French elections, markets are still underpricing the risk, although almost anything is possible based on the the latest polls.
In particular, BofAML outlines 2 negative outcomes for markets: 1- The worst outcome for markets, according to BofAML, is if Le Pen and Melenchon are in the 2nd round, as markets could start pricing Frexit risks. 2- BofAML thinks that markets could also react negatively to a Fillon and Melenchon 2nd round, as the polls suggest Melenchon could win.
EUR: Asymmetric risks.
BofAML believes that markets are still underpricing the risk despite the strong recent demand for hedging, noticing that investors remain long European assets and long EUR.
“We see asymmetric EUR risks from the elections, with EUR/USD at 1.10 in a positive scenario, but below parity and as low as 0.90 in a negative scenario,” BofAML argues.
EUR/USD is trading circa 1.0737 as of writing.
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