The lighter data calendar this week will see market risks shift to
idiosyncratic risks. Notably, following last week’s central bank
bonanza, the market will start to ponder whether political risks will
start to upset the subdued macro conditions.
Tonight’s first US presidential debate is likely to garner the most attention. The
election is just a little more than a month away and with the polls
still tightening, US election risks are likely to shift onto investors
the majors, this backdrop favors more defensive strategies and could
support the USD against North American currencies (and smaller, open
countries) even though its response could be more mixed against the EUR,
JPY and other safe havens.
The BoJ will also get more attention this week. The week kicked off
with Kuroda’s speech about monetary policy. The speech noted that QE is
likely to play a smaller role in the policy framework, suggesting less
scope for balance sheet expansion down the road. The market still
continues to questions the credibility of the policy framework to
achieve the 2% inflation target, boosting JPY. Increased political
uncertainty could see demand for safe havens with a downside break of
100 in USDJPY likely on tighter US poll numbers. We like short CADJPY on US election risks.