EUR/USD is holding its breath but beginning to show signs of worry towards the French elections. What’s the trade?

Here is their view, courtesy of eFXnews:

Going into the first round of the French elections on Sunday, BTMU FX Strategy Research’s base case for a higher EUR is mainly based on the assumption that neither Le Pen nor Melenchon become the next French president.

Thus, BTMU argues that the worst case scenario for the markets when they open in Asia on Monday morning would be the shock result of Le Pen and Melenchon reaching the 2nd round election on 7th May.

“Given how little risk premium we believe is priced, there is a considerable skew to a far larger move on that outcome. A drop to around parity before 7th May for EUR/USD we believe would be the likely outcome,” BTMU adds.

On the other hand, BTMU argues that the best outcome for the markets would be a Macron/Fillon 2nd round run-off.

Based on BTMU’s estimate of the current risk premium, EUR/USD would only advance to around 1.1000 on the latter outcome.

EUR/USD is trading circa 1.07 as of writing.