Interesting strength for EUR at the start of the week

Both the EUR and European Equities saw decent outperformance against their US counterparts yesterday.

The OAT/Bund spreads showed some calm yesterday with the spread falling 4 basis points from 0.76% to 0.72%. With the French snap elections coming up on Sunday, markets have already priced in a fair bit of risk premium on the fiscal side.

Arguably, the potential negative impact from a hung parliament (assuming Macron doesn’t step down) or a far-right majority victory might already reflected in spread and implied volatility across the EUR pairs.

Also worth noting that this week is month-end, quarter-end and half-year end, so we might also be seeing some rebalancing flows in the mix, which will have nothing to do with the macro or idiosyncratic risks in play right now.

This article was written by Arno V Venter at www.forexlive.com.