EU elections pose big event risks: Italian referendum is significant - Rabobank

Analysts at Rabobank explained that although the French Presidential election is very capable of injecting a significant degree of volatility into markets in the coming months, the result of the first Republican primary has brought a little welcome clarity into the outlook. 

Key Quotes:

"That said, the uncertainty connected with the Italian referendum is significant and should limit upside potential for the EUR in the near-term (no more opinion polls will be published ahead of the Dec 4 vote). For EUR/USD, activity in the last couple of weeks has been dominated by movements in the US yield curve. 

Although there is limited US economic data scheduled for the week, the market will still focus on the comments of various Fed officials. 

It is our view that the market may have priced in too much reflationary pressure into the US yield curve on the back of the Trump victory and that yields and the USD will correct lower medium-term. 

Today there has been a modest downward correction in treasury yields but since it will be some time before Trump’s policies are given clarity we would not expect a strong correction in treasuries near-term. On a 3 mth view we expect EUR/USD to have rebounded towards 1.08 – assuming Renzi remain Italy’s PM."