EUR/USD upside after US retail sales risk may be limited
June 17 (Reuters) -EUR/USD traded up slightly Monday as investors appeared to be lightening up on shorts ahead of key U.S. data risks, but longs may be disappointed as a sustained upward move on downbeat data could be elusive.
Since French President Macron called a snap election investors continue to worry about potential policy changes and the risk of a budget crisis.
Bond prices for French lenders remain under bearish pressure, reinforcing investors' worries.
Wider yield spreads between Germany and France DE10FR10=RR and Germany and the U.S. US2DE2=RR indicate investors remain concerned about the election.
EUR/USD Options investors have also been hedging for uncertainty.
Implied volatility for EUR/USD on 1-, 6- and 12-month tenors remains near recent highs while risk reversals indicate vol premiums for EUR/USD puts over calls traded near their highest since the election announcement.
Should U.S. May retail sales and industrial production surprise to the downside investors' expectations for Fed rate cuts may be pulled forward and yields could fall, but EUR/USD may not react as bullishly as longs hope.
EUR/USD rallies might be opportunities for bears as long as uncertainty in the European Union persists.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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