EURUSD vol underprices France's election risk – Deutsche Bank

Sebastien Galy, Macro Strategist at Deutsche Bank, points out that EURUSD overnight volatility attached to the first and second round of the French election are 29 and 43, far too low levels for an event risk similar to Brexit.

Key Quotes

“There are indeed possible scenarios under which Marine Le Pen might win leading to rising likelihood of a Eurozone break-up.

1. If we assume that various categories are reluctant to express their support for her, there have been significant periods of polling when she would have won the election.

2. Apparent external interventions have been a feature of elections in the West and could change the odds. Such a hypothetical scenario would have the most impact a week or two before the election.

3. Should Emmanuel Macron stumble significantly in one of the three upcoming TV debates, Francois Fillon might instead make it to the second round. Second round polls for Francois Fillon are now close to those of Emmanuel Macron but have had periods of weakness in the past.”