MUFG discusses the potential impact of the French elections and the June NFP print on EUR/USD. The focus is on the risk premium already priced into EUR/USD and how the election results could influence further movements.

Key Points:

1. Current Situation:
   • Stabilization: EUR/USD has stabilized around the 1.0700 level after initially dropping by two big figures following the announcement of snap elections in France.
   • Risk Premium: MUFG estimates a 1.0% risk premium is currently priced into EUR/USD.

2. First Round of Elections:

   • Impact of Results: The first round of the French elections on Sunday will provide a clearer picture of the support for right and left parties.
   • Potential Outcomes:
     • Strong Performance by RN & NPF: If right-wing parties like National Rally (RN) and left-wing parties like New Popular Front (NPF) perform strongly, EUR/USD could move closer to the 1.0500 level.
     • Surprise from Centrists: If centrist parties or Les Republicains perform better than expected, this could lead to spread narrowing and modest EUR gains.

3. Next Week’s NFP Print:

   • Economic Data: The June Non-Farm Payrolls (NFP) print will also be a key event to watch, potentially adding to EUR/USD volatility depending on the results.

Conclusion:

MUFG highlights that the French elections and the June NFP print will be crucial events for EUR/USD. Strong performances by RN & NPF could push EUR/USD towards 1.0500, while better-than-expected results from centrists could support modest EUR gains. The current 1.0% risk premium suggests that markets are already pricing in some degree of political risk, but the actual election results will likely dictate the direction of EUR/USD in the coming week.

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This article was written by Adam Button at www.forexlive.com.