According to Nomura’s World Forex Strategy Group, modern French election success, with Macron and Le Pen to run off on the 2nd spherical on May possibly 6th, really should be interpreted as ‘risk-on” for markets, which will probable thoroughly selling price in the consequence of the next spherical right now in favour of Mr Macron.
The initially spherical success of the French election threw the industry no surprises. Emmanuel Macron has arrive initially and Maritime Le Pen has arrive next in spherical a single of the two-part Presidential election.
But as Ms Le Pen has a 25% or so polling deficit to Mr Macron for the next spherical in two weeks’ time (which is more than three moments the normal margin of error) the industry will probable thoroughly selling price in the consequence of the next spherical right now in favour of Mr Macron.
This matters as the industry has embedded a threat premium in each EUR and OATs for some time now heading into this election.
We anticipate that premium to just about totally arrive out of the industry pricing and this really should see EUR/USD end previously mentioned one.09 on the working day and we anticipate this to keep on and are moving into a extended EUR/USD position.
We interpret the consequence as industry optimistic and anticipate 10yr Bunds to provide off at minimum ~5bp, while OATs really should rally ~10bp, major to tighter spreads. If Mr Macron wins in line with expectations we think 10yr OATs will rally a further ~15bp.