Deutsche Bank's View on EUR - FJElite
- Slow start to the week with the market digesting the headlines over the weekend of the serious protests in France, increasing the focus on the near-term OAT/Bund spread again as well as the French Election in April 2027
- Today, we have rolled over the first round of the elections with 6m rolling from 6.40 to 6.60 with the weight for both rounds at nearly 30 additive vols priced
- Given the renewed unrests and its pressure for fiscal expansion, I could see this weight squeeze even higher as the market is already worried about the French deficit and no party is currently offering plausible solutions
- So far, the EUR hasn’t really reacted much, but makers have already started to raise their RR slightly in the frontend with 1w RR being paid at 0.45
- As highlighted previously though, the spot vol sensitivity is much lower as the market had time to digest the large downside flows from a wave of unwinds last week so the question is whether vols would really squeeze much higher if spot was to trade lower Even as the event weight itself might sounds high, base vols are still very low compared to history and RR and flies have repriced a lot recently, so I think adding some EUR weakness trades into the portfolio makes sense from these levels