Although EUR vols appear to be at opportune levels for a fresh stab as European political hedge.

Owning protection against European political discontent has been a key pillar of our bullish vol stance since late last year but the bullishness on EUR-vol does not extend to EUR risk-reversals however. You could very well observe this in nutshell showing risk reversals for euro crosses.

Unless one can make the case for an unprecedented QE-like monetary policy innovation that spurs a 20% decline in the Euro, it is difficult to see EUR skews buck their long-run track record of underperformance (see above chart).

That kind of dramatic spot move is not in our baseline forecast: we project only a shallow dip in EURUSD towards 1.04 in H1, which implies that directional bettors on Euro weakness are better-off reprising the usual suite of put spreads or digital option structures.

The latter are well-priced in particular after the creep higher in spot this year: 4M 1.00 strike EUR put/USD call digitals that covers the French Presidential vote (a potential source of shock) but not the parliamentary elections (harder for the National Front to carry, hence a potential restorer of sanity) costs 10% of EUR notional on mids, which is excellent leverage for a barely 1-sigma spot move over the life of the trade.