Goldman Sachs scenario for the parity bus (EUR/USD parity that is)
Goldman Sachs on the French election, finessing a common line of thinking:
- If Le Pen's odds of winning increase 10% EUR/USD could depreciate around 2%
- If Le Pen does not progress to the 2nd round EUR/USD could appreciate approximately 5%
EUR/USD is at further political risk from populist Euro-skeptic movements in Italy & elsewhere.
GS say investors currently put a euro break up chance at 20%. If this climbed to 75%:
- EUR/USD could drop to 1.02
- EUR/JPY to 111.5
- EUR/GBP to 0.82
- And perhaps even further (GS say further downside risk)
- GS say if so, watch for an ECB response ... more unconventional policy between first and second round of French election
If euro-area breakup odds fall to 10% there would be "slight" appreciation in EUR vs G-10 currencies.
Mmmm ... I'd be interested in ForexLive feedback on this from GS.
I see their point, but the precision strikes me as overconfidence. Then again, I'm not one for 'targets' really.