French risks are feeding into EUR/USD on two fronts: near-term budget worries are weighing on spot and short-dated options, and the 2027 presidential election is starting to show up further out.

Near term: French budget worries remain a concern for EUR traders. Another weekend of protests and wider French government bond (OAT)-Bund spreads are weighing on EUR/USD on Monday, pushing it back below 1.1200. That is supporting short-dated EUR puts and underpinning implied volatility. Buyers have returned to the front end, with 1-week and 2-week risk reversals regaining 0.4 EUR puts over calls from neutral. The 1-month 25-delta contract opened in London around 0.425, up from 0.25 last week. The bounce is modest compared with last week's drop, when long-USD bets taken on since mid-September were unwound, especially against the euro. It does show that downside risks are lingering.

Further out: The 6-month expiry now spans the first round of the presidential election on April 18, 2027. Its implied volatility has risen to 6.5 from 6.3 since Friday, and 25-delta risk reversals were paid at 0.55 EUR puts over calls, from 0.4. That is not a small move for an event so far in the future.

The 6-month tenor should stay supported relative to the dates before it. More risk premium is likely when the expiry rolls past the second round on May 2, 2027.
EUR/USD 25 delta risk reversals


EUR/USD FXO implied volatility

(Richard Pace is a Reuters market analyst. The views expressed are his own)