Societe Generale FX Strategy Research argues that as Emmanuel Macron victory in the French election was not a ‘surprise, there is a risk of profit taking in EUR long positions in the short-term.
In particular, SocGen notes the EUR has already made sizeable gains going into the second round of the French Presidential election close to its highest level (in trade-weighted terms) since the US Presidential election in November.
"Emmanuel Macron was already 80% priced-in so there likely will be a danger in the near term. We see profit-taking on long euro positions. The EUR/USD in particular appears to have risen further in recent days than is consistent with the moves we’ve seen on bond yields," SocGen argues.
Looking further ahead however, SocGen expects EUR to benefit on the reduction in political uncertainty which should allow the focus to shift back to the prospect of a normalization of ECB policy.
What's the trade: SocGen prefers long EUR/JPY positions to EUR/USD at this stage.
SocGen's rationale behind this this view is that while the Fed is en-route for further rate hikes this year, the BoJ by contrast maintains its stance of anchoring JGB yields and that leaves the EUR/JPY more sensitive to a rise in German Bund yields.
EUR/USD is trading circa 1.0990 as of writing.
Source: Societe Generale Cross Asset ResearchOriginal Article
