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Jun 11 - 12:55 PM

MUFG: Scenarios for French Elections and EUR Performance

By eFXdata  —  Jun 11 - 11:15 AM

Synopsis:

MUFG outlines three potential scenarios for the upcoming French elections and their expected impact on EUR/USD performance. The scenarios range from the RN party disappointing to winning a majority, each with varying probabilities and implications for the EUR.

Key Points:

  1. Scenario 1: RN Party Disappoints

    • Outcome: The RN party fails to become the largest party in France.
    • EUR Impact: Triggers a relief rally for the EUR, lifting EUR/USD towards the top of the 1.0500-1.1000 trading range.
    • Probability: 40%.
  2. Scenario 2: RN Party Becomes Largest but Falls Short of Majority

    • Outcome: The RN party becomes the largest party but cannot form a majority in parliament, leading to policy gridlock.
    • EUR Impact: EUR trades closer to the bottom of the 1.0500-1.1000 range due to lack of clear path to stable government.
    • Probability: 55%.
  3. Scenario 3: RN Party Wins Big and Forms Coalition

    • Outcome: The RN party forms a coalition with other parties (Republicans & independents) to govern.
    • EUR Impact: Initially triggers another leg lower for the EUR, with EUR/USD potentially falling to a lower trading range between 1.000-1.0500 due to increased risk of disruptive policies.
    • Probability: Less than 5%.

Conclusion:

Ahead of the first round of elections on 30th June, MUFG expects the euro to trade at weaker levels, reflecting the heightened political risk in France. The EUR/USD performance will depend on the election outcome, with scenarios ranging from a relief rally to further declines depending on the RN party's success and ability to form a government.

Source:
MUFG Research/Market Commentary

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