EURUSD: Searching for a magic formula - HSBC

Analysts at HSBC suggest that the EUR is behaving as a politically-driven currency as the Dutch election (15 March) and the French Presidential election (first round on 23 April) have come squarely into view.

Key Quotes

“EUR-USD has fallen over 2% so far in February as the latest bookmakers’ odds show an increasing probability that Marine Le Pen could be elected as French President.”

“This EUR weakness has happened despite ongoing strength in the cyclical data: European PMIs were better than expected and the German IFO also beat expectations, for example. However, EUR-USD has ignored these releases and is still trading around its lowest levels since early January.”

“We think that the market will increasingly focus on these upcoming political risks as we get closer to the elections. Indeed, this is the basis for our forecast of EUR-USD falling to 1.01 by the end of Q1 before rallying later in the year after these risks have passed.”