EUR: Politics not in the driving seat – Nomura

European politics have been attracting persistent market interest and While Spanish domestic politics have generated headlines recently, the Italian election is set to be the next focus, explains the research team at Nomura.

Key Quotes

“we see three reasons for a less significant EUR reaction than occurred ahead of French election (especially against JPY and USD): 1) apparently much lower EUR sensitivity to peripheral spreads, 2) higher EUR sensitivity to rate spreads and data as the ECB prepares to start policy normalisation, and 3) much smaller exposure to Spanish and Italian bonds outside the euro area.”

“More fundamentally, we also judge that the recent attempt to change electoral law will decrease the risk of a euro-sceptic government in Italy. We currently keep our bullish view on EUR, and this time around, we judge European politics will be less important for EUR trading.”