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It is probably too optimistic to expect both common EU debt and a widespread regulatory roll back, but it may be worthwhile buying a EUR lottery ticket in option space, according to analysts at Nordea. Danske Bank sees upside potential for the shared currency, too.

Key quotes

“We see a very low risk that the Karlsruhe ruling will prove to be a medium-term obstacle for the ECB.”

“If the Franco-German debt proposal (miraculously) passes the test during the coming week and wins the backing from all of the EU-27, we reckon that it would be a major EUR positive event.”

“It will probably be hallelujah days for the EUR, should a new regulatory environment in the Euro area be added to the mix on top of common EU debt. Lawmakers have started pondering whether to roll back MIFID II, which would likely be a big positive for the banking sector profitability specifically and for credit growth in general. The EUR has generally struggled versus USD during the relative tightening of Euro area regulatory burdens versus peers in the US.”

“If we assume that MIFID II is rolled back and that 3M EUR/USD hedge costs remain as low as currently, we make the case that >1.20 readings in EUR/USD could be on the cards.”