EUR: European political developments are key domestic risk for the euro - BTMU

Analysts at Bank of Tokyo Mitsubishi explained that the euro is more likely to be driven by domestic political developments at least through the first half of this year.

Key Quotes:

"Heightened political risk in Europe which could include early elections in Italy supports our forecast that EUR/USD will soon test and break below parity. Fears that anti-establishment and eurosceptic parties will perform well in upcoming elections could begin to weigh more heavily on the euro in the coming months given the risk it poses to financial stability in the euro-zone."

"Comments yesterday from French National Front leader Marine Le Pen have garnered some market attention. She provided more details over her desire to take France out of the euro by proposing that a new national currency could be linked to a common currency like the European Currency Unit that existed before the euro was introduced. She attempted to provide reassurance to the French public that "a national currency co-existing with a common currency would not have any consequences for French daily life". "A 'monetary snake' is something that appears reasonable," in her view referencing the 'snake in the tunnel' system introduced in the 1970s to limit fluctuations between European currencies. National Front economist Jean-Richard Sulzer has stated that the proposed fixed exchange rate system would allow for “rare” adjustments. She was also more guarded over potentially taking France out of the EU stating that she did not want to leave the EU but instead wanted to “renegotiate” with Brussels. Before leaving the euro, she has pledged to hold a referendum on France’s relations with the EU within six months of an election victory."