Heading into the first round of the French elections on Sunday, Credit Agricole FX Strategy Research's base case sees Le Pen and Macron progressing to the second round, and expect Le Pen not to reach considerably more than 24% of the vote.
"Should our base case for the first round (Macron & Le Pen) holds true and as markets are positioned for such an outcome the EUR is unlikely to face a relief rally of more than 1%," CACIB argues.
However, CACIB notes that uncertainties remain and should Le Pen, against expectations, reach levels closer to 30% or above markets will start to worry and price in this ‘panic threshold’ through a rush to safety hedges.
"So far, broadly balanced EUR positioning and bond market developments suggest that markets are not positioned for any adverse development…The EUR should weaken across the board under this outcome," CACIB adds.
In terms of next week' ECB, and BoJ policy meetings, CACIB expects the central banks to stay on hold and upgrade their growth outlooks (for BoJ), absent unpleasant shocks from the French vote.
EURE/USD closes the week circa 1.0722 and USD/JPY closes the week circa 109.14.
Source: Credit Agricole CIB ResearchOriginal Article
