EUR/USD to surge towards 1.25 by summer, shrugging off French elections – ING
|The 2022 French presidential election campaign has many similarities to 2017, but also some notable differences. In FX, a risk premium is already visible in implied volatility ahead of the vote, but EUR/USD spot should be unaffected this year, economists at ING brief.
The French election risk a story for FX volatility for now but not for FX spot
“For now, we expect the spectre of the 2022 French presidential election risk to be rather a story for EUR/USD implied volatility markets than for the spot market. The EUR/USD implied volatility curve already exhibits a kink in the term structure around the April 2022 election date.”
“As for the EUR/USD spot, the prime driver for the coming months should be the road towards the expected summer eurozone economic recovery, helped by a faster vaccination process, the resulting improvement in poor eurozone activity data and the re-pricing of the bad news priced into the EUR/USD. This is evident in our short-term fair value model, which sees EUR/USD as undervalued by close to 2% at this point.”
“While the polls look much tighter now than back in 2017, things look set to improve in favour of the market-friendly candidate Macron by the time of the election; the economy should recover and the worst of the covid situation should be over. That suggests that the EUR/USD risk premium ahead of the 2022 elections may not exceed that observed in 2017.”
“Importantly, the associated election risk premium in EUR/USD spot should be apparent in the cross much closer to the election date (in 2017, the French election risk premium started to be built into EUR/USD less than one month ahead of the event) rather than this year, allowing EUR/USD to focus on eventual positives this summer and the pair to move to the 1.25 level by summer.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.