Despite being an underperformer in G10 in the past month, EUR still screens near fair value on this framework, indicating that little political risk is priced in ahead of the French elections. This is also consistent with the conclusion from our cyclical models which indicate that EURUSD is near fair value adjusted for US-Bund rate differentials and with our macro view that EUR has the potential to weaken in the run-up to the French elections. The richness in EUR is comparable to that in CHF on this framework, a gap we think should widen in favor of CHF.

GBP continues to be the cheapest G10 currency on this framework cross-sectionally, but still, has room to weaken further relative to its history. GBP remains the cheapest currency with G10 when ranked cross-sectionally on this framework (refer above chart).

However, the currency has room to weaken further relative to fair value since historically (in 2008), it traded as much as 20% cheap to fair value. Our macro view remains structurally bearish on GBP and we do not believe that a further 5-10% weakening eventually is not unreasonable given the dependence of UK on foreign capital.

In outright trades, we hold:

Long USDPLN 23-Feb-17 and EURPLN 1x1 debit call spread (ATM, 4.60), at spot ref: 4.0757.

Long 23-Feb-17 EURILS 1x1.5 put spread (4.05, 3.90), at spot ref: 3.9518.

Short 27-Nov-17 EURCZK forward.