fxs_header_sponsor_anchor

Analysis

Given the dreadful Payrolls number on Friday, the Fed is surely going to cut rates on November 7

Outlook

Today we get US factory orders, employment trends and a 3-year Treasury auction, but realistically, it’s all the election, all the time.  On the side, the eurozone final Oct manufacturing PMI’s were better than expected at 456 from 45.9, the first gain since May, but still not above the boom/bust line at 50 and not much heeded. This week we get central banks decisions in Sweden, Norway and the UK as well as the US.

The outlook is about as messy as it gets. We have a buy signal in the USD/CHF (and USD/MXN) with additional likely signal changes in the EUR/CHF and EUR/GBP—but then the opposite of confirmation in the euro itself on Friday. The seeming upside breakout fizzled, but maybe that was just Friday cowardice.

We wonder what it means that the dollar is gaining so much (engulfing bull candlestick) against the famously risk-aversion favorite, the Swiss franc. Does that mean risk (Trump) is so high that the dollar beats the Swissie as the safe haven? We also have a dollar sell signal against the Chinese yuan, which is backwards. If Trump wins the election, China is going to be the main tariff target and its currency should not be the favored one.

One of the most oft-cited Trump trade fail is the Mexican peso, which fell as Trump seemed to be leading but has reversed today, if not by much (so far).

The Financial Times is probably too early, but here is the top headline today at 8 am ET:

And as noted above, the Trump trades are losing ground very fast, including DJT Media stock that is down almost 5% this morning and PredictIt raising Harris from 43¢ last week to 56¢ today and Trump down from 55¢ to 51¢.

We will not know the outcome of the presidential election until late in the week, if then. Given the dreadful payrolls number on Friday, the Fed is surely going to cut rates on Nov 7. Since a cut is already priced in, the peculiar conduct of the dollar is downright weird. We do not have a satisfactory explanation.

It’s also true that consumers are spending like drunken sailors (implies inflation), which may account for the 10-year going up instead of down. Or maybe yields are up because the bong gang fears Trump deficits and general economic mismanagement, and it’s the right bet to make.

The implication is that while the national debt will go up under Harris, too, her team would be qualified professionals, not lackeys, and the fear-factor will retreat. A Harris win could easily see yields fall by a lot, like 50+ bp. As we have been saying for a while, the dollar “should” track them downward.

We can also expect the Dec cut to be more likely under a Harris win, however contradictory the economic data. We say the Fed would not cut in Dec if Trump wins because the loss of confidence in the Fed and Treasury would need nice high returns to offset the natural sellers.

Forecast

What you forecast for the FX market depends now on what you expect from the election. We expect a Harris win (yields down, dollar down) but it will be confusing, because Trump is going to make a stink and there is a chance, albeit a small one, the Supreme Court throws the election his way, as in the Gore case.

The high success rate of the Iowa pollster has turned heads and switched the betting market from Trump to Harris. This is as much wishful thinking as realistic analysis.

We think the FT and others are right, if early—the dollar has been firm on the high-risk and repulsive idea of Trump win, and that has diminished. It’s a change in sentiment, and as we know, sentiment can be fickle. The risk aversion trade is wounded, not dead. We would bet on the Harris win and the currencies getting a rise out of it, but admit it’s risky.

Political Tidbit: The top weekend news was a highly successful pollster in Iowa giving Harris a 3% gain over Trump—in a state that went for Trump by 8-10 points in the last two elections. This is white, blue-collar and rural, supposedly the Trump demographic. The switch had MSNBC pundits all aflutter Sunday night—is something new happening? Will it spread to nearby Wisconsin?

Well, yes. The candidate is a convicted felon, for the first time. He is a serial abuser of women. He brags about ending Roe. He’s a racist, threatens violence to his opponents, and swears on stage and TV. This is the Bible Belt, after all. At some point this conduct had to sink in.

The other polls indicate that except for a few states, neither candidate has a lead beyond the margin of error. We think this is a shortcoming of polls rather than an indicator of a country split down the middle. We have never had a convicted felon running for the presidency. Everyone knows he will be sentenced for tax fraud after the election and that he took those top secret documents, too. Also, we have never before had a woman of color running, either. A woman yes. Color, no. One-time circumstances make polling modelling well-nigh impossible.

The best analysis we saw over the weekend is from comedian Bill Maher, speaking to so-called undecideds. “Do I love everything about Kamala? No, who told you you get to love everything? Do I wish she came up with a better reason to be president than ‘I’m not Trump’? Yeah, it would have been very helpful. But let’s not forget: I’m not Trump is still a really great reason.”

The entire world feels this way. We hear from readers in Europe that the US election is an obsession and the only topic discussed in Germany, the UK, Spain. Remember that it took Biden years to restore “confidence in the US” that Trump had trashed. If Trump wins again, it may be lost for generations.


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.