Here Is How To Position On US Election Risk?

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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 radar screens.

For 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.


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