Volatility is certainly high after Trump’s Triumph. The dollar initially crashed but found reasons to rise. The team at BNP Paribas marks very similar levels for EUR/USD and USD/JPY:
Here is their view, courtesy of eFXnews:
The initial market reaction to Donald Trump’s presidential election victory was a typical risk off move. Nikkei 225 dropped by 6% and US 2-year and 10-year yields both lost 17bp. The probability of a Fed December rate hike fell quickly from 80% pre-election to around 50%. FX market moves (G10 majors) largely took their cues from risk assets, especially equities, as we expected on a surprise Trump victory. Low yielding currencies surged vs. the USD, especially JPY and the commodity bloc weakened (AUD, CAD and NZD). However, after a few hours, the initial reaction was significantly tempered and most of the sell-off traced back.
This morning, the USD has largely gained back yesterday’s losses. As indicated by the spike in long-term US inflation breakevens (+8.5% from the trough), we think that this rally mainly reflects the focus on prospects for a large fiscal stimulus and reduced regulation given the unified Republican control of the White House and the Congress, alongside an assumption that the less market friendly aspects of the Trump campaign will be downplayed now that the election is behind us.
We think this process has further to run, with USDJPY and EURUSD likely to move towards our 108 and 1.08 year-end targets now as long as the risk environment remains supported.
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