EUR to fall 10%?

7 February, 2017

We’ve presented two bearish views on the EUR (including our own and the one from DB). JPMorgan Chase is also bearish on the currency. According to bank’s analysts EUR could fall ~10% to about 0.98 versus dollar over a few weeks on Le Pen victory in France, compared to the 6% drop experienced with 2012 Greek elections as the market prices in the possibility of an EMU exit. 

Bank adds that France’s potential election of an anti-EMU government would represent an almost unique event, the obvious issue for the euro is that the French economy is more than 10 times larger than Greece’s so corporate and bank exposure subject to convertibility risk on any successful EMU exit referendum is materially larger than what any Greek drama portended.

What’s interesting, JPM says that EUR/USD carries no risk premium for an adverse outcome in France, as evidenced by short-term fair value models. 

As BBG reports, given the cross-currents from Trump’s policies, JPM avoided hedging European political risk so far through short EUR/USD cash, and opted instead since late 2016 to sell EUR/CHF cash and own 1-yr EUR/USD straddles.


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