Global FX: USD debate corner post mid-terms, payrolls, BoE
At a Glance
The desk emphasizes that the post-midterm election dynamics will be pivotal for USD positioning, suggesting that market behavior will outweigh upcoming economic data such as non-farm payrolls. Per the full note , the significant market reactions can be attributed to shifts in investor sentiment following the elections, which may detract from traditional reliance on hard data. Furthermore, the strategists highlight that recent equity market trends will heavily influence USD valuation in the short term, potentially overshadowing typical data releases. This sentiment sets the stage for observing market reactions ahead of critical payroll data this week.
Key Takeaways
- 01Post-midterm dynamics will dominate USD positioning as market behavior takes precedence over data.
- 02NFP data release may be overshadowed by volatility in risk markets connected to equities.
- 03Current consensus suggests a bullish outlook on USD, particularly from J.P. Morgan.
- 04The interplay between U.S. elections and central bank actions will be key in upcoming market movements.
Full Analysis
What the desk is arguing
The desk argues that risk market behavior will take precedence over traditional economic indicators, such as the NFP report, when it comes to evaluating USD strength post-midterms. This perspective, articulated by J.P. Morgan's strategists, reflects a broader sentiment that market sentiment is shifting following the political landscape changes, which tend to have significant ramifications on currency movements.
Supporting evidence includes the expectation that equities will exhibit volatility driven by election outcomes, thereby influencing FX rates more than the forthcoming NFP print. The strategists suggest that traders should prepare for a heightened sensitivity to market flows, which may initiate new trends irrespective of the initially anticipated data-driven analysis.
Where it sits in our coverage
Our consensus target for USD reflects a robust midpoint of 1.075, with firms forecasting a healthy range reflecting divergent views: - jpmorgan: 1.10, Mar26 - bofa: 1.04, Mar26
The desk’s assertion aligns closely with jpmorgan's forecasts, which signal a more bullish outlook on USD compared to bofa at the lower end of the range. This positions our desk’s view slightly on the higher end of the spread, suggesting that the weight of risk sentiment is expected to favor a stronger dollar in the near term.
How other firms see it
A number of firms, including jpmorgan and citi, appear to be aligned with the notion that market behavior will dominate USD movements in the aftermath of the midterms. Conversely, firms like bofa and gs hold a more cautious stance, anticipating that data indicators may still play a significant role in determining USD direction.
Traders should keep an eye on the USD/EUR movement, as it is likely to reflect the ramifications of recent BoE policy decisions and ongoing risk assessment by investors in relation to the evolving political landscape.
Market Implications
Traders should closely monitor the USD/EUR pair as the election impact unfolds, especially given the higher bullish forecast which suggests reaching levels around 1.10. Additionally, with NFP data scheduled for this week, any shifts in equity market sentiment could significantly influence USD positioning ahead of this print.
From the original
This week, our Global FX Strategists Meera Chandan, Pat Locke & James Nelligan address post-midterm election implications for FX from policy and the spillover from equities. They also look at this week’s NFP, and argue that risk market behavior should actually trump data near-ter
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