3 scenarios for the EUR/USD in response to French legislative elections - Citi

Investing.com - The EUR/USD has dropped significantly in recent weeks, particularly affected by the shock of the dissolution of the National Assembly in France and the resulting political uncertainty.

In a note published Tuesday, Citi analysts highlighted that the reaction of the EUR/USD was more significant than they initially anticipated and proposed three scenarios for the outcome of the early legislative elections to be held on June 30 and July 7.

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For each scenario, they provided two targets for the EUR/USD: one if President Macron resigns, and the other if he remains in power.

The first scenario envisions either a centrist coalition or a government led by the National Rally, but which would find itself in a situation leading to the abandonment of most of its economic projects. They consider this scenario the most bullish for the EUR/USD, predicting a rise to 1.0810 for the currency pair in this case and if Macron remains president. If he resigns, Citi's proposed EUR/USD target is 1.0710.

In its second scenario, Citi imagines a deadlocked Parliament, or a government led by the National Rally that would seek to implement some of its promises. For this scenario, Citi analysts predict an EUR/USD at 1.0730 if Macron remains, and at 1.0570 if he resigns.

Finally, the last scenario described by Citi takes into account a government led by the National Rally or the New Ecological and Social People's Union that would seek to implement as many measures from its program as possible. This scenario would lead, according to them, to an EUR/USD at 1.0570 if Macron remains, and at 1.0410 if the president resigns.

Citi thus estimates that the downside risks in the event of an unfavorable outcome are greater than the upside risks in the event of a positive outcome, making the Euro Dollar a currently unattractive currency pair from a risk-reward ratio perspective.