“You’re Dismissed”: Here’s How Markets Are Feeling About Sunday’s Big Event

Call it overconfidence if you want, but the “win” for the pollsters in the first round of the French elections has the market feeling a whole helluva lot better about the runoff.

As more than a few commentators noted late last month, Emmanuel Macron wasn’t the real winner in the first round – the pollsters were. Because between Brexit and Trump, the market had lost all confidence in their ability to accurately forecast “close encounters of the populist kind.”

So there was a palpable sense of relief when the French elections went largely according to “plan” (and before the conspiracy theorists get all excited, by “plan” I just mean “early polls”).

Well, as we head into the runoff, FX markets are noticeably less nervous. Read below as Bloomberg’s Vassilis Karamanis explains how markets are essentially “dismissing” Le Pen.

Via Bloomberg

Surge in one-week implied volatilities ahead of the final round of the French presidential elections is far less pronounced than that before the first round as concerns over an anti-euro candidate win have eased.

  • One-week in EUR/JPY has gained since Friday almost 6 vols to trade at 14.51% high
    • Ahead of the first round, it gained almost 19 vols on April 17 and hit 27.82%, its strongest level since Brexit
  • EUR/USD on the tenor rose Monday by as much as 4 vols to 11.56%; this compares with a gain 2 1/2 times greater on April 17 and an intraday high of 17.11%
  • Vol skews paint similar picture, though tail risk keeps EUR puts bid
    • EUR/JPY one-week 25d risk reversals at 440bps in favor of EUR puts, compared to as much as 655bps two weeks ago
    • EUR/USD at 231bps in favor of USD calls, compared to 400bps on April 18
  • Still, JPY remains the preferred haven choice among traders; spread in the front-end between euro puts premium over yen versus that on the franc stands at 240 bps


  • Vols could ease further should polls show Macron holds a steady, if not widening, lead over Le Pen, while skew could consolidate at current levels as liquidity worsens heading into the weekend

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