Donald Trump won the presidency in a shock decision that rocked markets. What’s next? Here are targets for 4 currency pairs:
Here is their view, courtesy of eFXnews:
Below we update our current market thinking for our core markets on the basis of the Republican clean sweep.
AUD: We have maintained the view that the A$ and NZ$ would likely see similar falls on a Trump victory to what we saw over the UK referendum. Indeed, it seems fair to argue that we should see more aggressive falls in the A$ given Trump’s stance on China, trade and tariffs etc. A deterioration in relations between the US and China could destabilise Brexit -weakened east-west trade even further. A sharp deterioration in in US/ Chinese relations could up-end commodity markets too. We see risks of A$ trading down to and through 0.74 as we strive for a better understanding of Trump’s stance on China.
EUR: The EUR is likely to continue its path towards 1.14/ 1.15 in coming weeks. The Fed is unlikely to hike in Dec, as financial conditions tighten and uncertainty in key areas of the US economy takes hold. Fed officials are likely to await evidence that the US economy is “weathering” the near term uncertainty of a Trump presidency. However, the possibility of no vote in Italy and a possible political crisis will likely weigh more heavily on traders mind after the shock Brexit and Trump outcomes. Thus gains in EUR beyond that 1.14/1.15 level should be firmly capped.
JPY: The last couple of days had seen increasing confidence surrounding Clinton’s position and thus a market becoming positioned long on ¥ crosses e.g. AUD/JPY well above its 200 day moving average and EUR/JPY testing key resistance at 116/116.50. Trump’s victory has therefore generated a sharp reversal. Clearly, the market based probability of a Fed hike has slumped too. So we see this move continuing and USD/JPY pushing to and through 100.
GBP: The initial impact on GBP from is that of position adjustment. GBP shorts have been a favoured position, especially of leveraged funds since the Brexit vote. That now looks set to change. Uncertainty is a great driver of markets and what we have seen today is uncertainty over the shape of the US Administration under Trump. The reduction of risk, the closing of open positions and notably USD longs, is a standard reaction to such uncertainty. In the near term, the balance between position adjustment and the drivers (many of which remain) of those shorts is likely to mean that GBP/USD is likely to struggle in the 1.26-1.28 area and then drift back into the lower 1.20’s as markets refocus upon the specifically British issues.
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