Despite being an underperformer in G10 in the past month, EUR still screens near fair value on this framework, indicating that little political risk is priced in ahead of the French elections. This is also consistent with the conclusion from our cyclical models which indicate that EURUSD is near fair value adjusted for US-Bund rate differentials and with our macro view that EUR has the potential to weaken in the run-up to the French elections. The richness in EUR is comparable to that in CHF on this framework, a gap we think should widen in favor of CHF.
GBP continues to be the cheapest G10 currency on this framework cross-sectionally, but still, has room to weaken further relative to its history. GBP remains the cheapest currency with G10 when ranked cross-sectionally on this framework (refer above chart).
However, the currency has room to weaken further relative to fair value since historically (in 2008), it traded as much as 20% cheap to fair value. Our macro view remains structurally bearish on GBP and we do not believe that a further 5-10% weakening eventually is not unreasonable given the dependence of UK on foreign capital.
In outright trades, we hold:
Long USDPLN 23-Feb-17 and EURPLN 1x1 debit call spread (ATM, 4.60), at spot ref: 4.0757.
Long 23-Feb-17 EURILS 1x1.5 put spread (4.05, 3.90), at spot ref: 3.9518.
Short 27-Nov-17 EURCZK forward.


Trump’s "Shock and Awe" Agenda: Executive Orders from Day One
Moldova Criticizes Russia Amid Transdniestria Energy Crisis
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios
Global Markets React to Strong U.S. Jobs Data and Rising Yields
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data
China's Refining Industry Faces Major Shakeup Amid Challenges
European Stocks Rally on Chinese Growth and Mining Merger Speculation
Stock Futures Dip as Investors Await Key Payrolls Data
Energy Sector Outlook 2025: AI's Role and Market Dynamics
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential




