+17,297 USD: Is the Trump Shock Back? Analyzing Market Reactions to the Strong Dollar!
From October 28 to November 1, the trading resulted in a total profit of +17,297 USD.
Last week, following the results of the Japanese House of Representatives election where the ruling Liberal Democratic Party and Komeito coalition lost their majority, attention turned to the movement of the Japanese yen, which subsequently weakened. This outcome has strengthened the view that the Bank of Japan will find it difficult to implement additional rate hikes. However, this movement is considered temporary, as attention has shifted to important U.S. events such as the presidential election and employment statistics later in the week.
With reports of Trump being in the lead, expectations for a “Trump Trade” and a stronger dollar have resurfaced. In particular, pressure to buy the dollar has increased due to high tariff policies, while scenarios such as a Harris reversal are also being considered, keeping the forex market in a fluid state.
The U.S. non-farm payroll figures fell significantly below market expectations, but considering the special factors affecting the job market, the market reacted calmly. However, this led to some struggles when attempting to sell the dollar, resulting in considerable losses.
Starting from the 4th, with the U.S. presidential election and the FOMC meeting approaching, attention will again focus on the movement of the U.S. dollar. If Trump is elected, it is anticipated that there may be “sell-the-fact” reactions for the dollar that has been bought up until now, but ultimately, it remains uncertain until the results are revealed. We plan to flexibly respond to the flow of the market.
Future Points of Interest:
Forex Market Outlook for the Week of November 4: U.S. Presidential Election and FOMC Will Be Key Factors Moving the Market
USD/JPY: Stable development, intervention risks around 160 yen
The USD/JPY will be heavily influenced by the U.S. presidential election on November 5 and the FOMC on November 6-7. Both Republican candidate Trump and Democratic candidate Harris have pledged to cut taxes and expand fiscal spending, which is expected to lead to an increase in U.S. long-term interest rates and strengthen the dollar. In particular, if Trump wins and the Republicans control both chambers of Congress in a “red sweep,” U.S. bond selling and dollar buying may accelerate, increasing the likelihood that the Fed will postpone rate cuts due to inflation concerns, potentially pushing the USD/JPY towards 160 yen.
However, if the dollar strengthens too rapidly, there may be a risk of yen-buying interventions by Japanese authorities. Additionally, with the special session of the Diet scheduled for the 11th to appoint a new prime minister, political uncertainties could become a factor for yen buying.
EUR/USD: Increased downside risk
The EUR/USD faces downside risks due to the instability of the situation in Ukraine and the potential for increased tariffs on Europe by the U.S. if Trump wins. If geopolitical risks rise after the U.S. presidential election, concerns about the Eurozone economy will spread, increasing the likelihood of additional rate cuts, and the EUR/USD may see increased risks of falling to the 1.0600 level.
Furthermore, the Eurozone’s September Producer Price Index (PPI) and retail sales will be released on November 6. If the economic indicators are weak, expectations for a rate cut at the ECB’s December meeting may rise further, leading to increased selling pressure on the euro.
GBP/JPY: Upside pressure due to BOE rate cut expectations
The GBP/JPY is expected to be weak due to the BOE’s anticipated 0.25% rate cut at its meeting on November 7, following the slowdown in U.K. inflation indicators. As expectations for BOE rate cuts strengthen, the upside for the pound is expected to be limited. Additionally, the significant tax increase plan announced by Labour Party leader Starmer this week may provide short-term support for the economy but could also pose a risk of rising inflation, putting further downward pressure on the pound.
CAD/JPY: Focus on Canadian employment statistics and concerns over additional rate cuts
The CAD/JPY will be focused on Canada’s October employment statistics, which will be released on the 8th. In September, the employment statistics showed a surprisingly low unemployment rate, with an increase in employment. However, if the results turn out to be lackluster, expectations for additional rate cuts by the Bank of Canada (BOC) may rise, potentially leading to selling pressure on the Canadian dollar.
The Bank of Canada has indicated its intention to continue cutting rates, and the Canadian dollar is expected to be influenced by movements in the U.S. dollar and yen.
AUD/JPY: Sensitive reactions expected to U.S. presidential election and RBA meeting
The AUD/JPY is attracting attention ahead of the RBA meeting on the 5th. Although the CPI announced in October declined year-on-year, it included the effects of subsidies, and the inflation trend remains at a high level, making it likely that RBA rate cuts will be postponed to the first half of next year.
Furthermore, the Australian dollar is a currency sensitive to risk and is expected to be significantly affected by stock market movements following the U.S. presidential election. Depending on the election results, the stock market may fluctuate, causing the Australian dollar to move up and down.
ZAR/JPY: Risk-off selling of the rand in case of Trump’s victory
The South African rand is expected to be significantly influenced by the results of the U.S. presidential election on the 5th. Given South Africa’s strengthening cooperation with BRICS countries, if Trump wins and the bilateral relationship between the U.S. and South Africa is reevaluated, the rand could weaken. Additionally, there is a risk that South Africa may be excluded from the U.S. African Growth and Opportunity Act (AGOA), which could serve as a reason for selling the rand if Trump wins.
Summary of Key Points for This Week:
- U.S. Presidential Election: Whether the market moves towards a stronger dollar and weaker yen or if uncertainty leads to stronger risk-off moves will be a focus.
- U.S. FOMC Meeting: How announcements regarding inflation expectations and interest rate policies will influence the market is crucial.
- European Inflation Indicators: Whether expectations for ECB rate cuts strengthen.
- Canadian Employment Statistics: Points to watch for any strengthening of BOC’s rate cut stance.
- Australian RBA Meeting and U.S. Stock Trends: Possible increase in volatility for the Australian dollar.
Overall Outlook
The week is expected to revolve around the U.S. presidential election and the FOMC, with movements in U.S. long-term interest rates influencing the overall market volatility.
Afterword
Now, the world’s attention is focused on the U.S. presidential election on November 5.
Why is this election attracting so much attention? It’s because of its international influence and the role that America plays. Here are five main reasons:
- Economic Power and Impact on Financial Markets
The United States is the world’s largest economic power, and its policies and the president’s agenda significantly affect the global economy. When U.S. economic or fiscal policies change, the values of currencies and financial markets worldwide react, prompting countries to closely monitor these developments. - Role of the Dollar as the Reserve Currency
The dollar is the world’s reserve currency, central to international trade and financial transactions. Changes in the value of the dollar due to U.S. policies have economic repercussions for many countries. This is especially true for emerging and resource-rich countries that are sensitive to the policies of the U.S. president regarding dollar-denominated transactions. - Diplomacy and Security
The U.S. leads in military power and is central to international security. The diplomatic policies and security stances taken by the U.S. president have significant implications for both allies and adversaries, influencing the course of peace and war. - Climate Change and Environmental Policies
The U.S. is one of the leading countries in climate change mitigation and environmental protection. The environmental policies of the leader elected in the presidential election will influence international climate agreements like the Paris Accord and the environmental measures taken by other countries. - Technological Innovation and Trade Policies
The U.S. is also advanced in the development of high-tech and innovation. The direction set by the president regarding technology and trade policies will impact the economies and technological development of other countries. For instance, changes in policies regarding intellectual property protection or trade friction could alter the global business environment.
As FX traders, we should focus on points 1 and 2 in the short term. The election results will likely be available about 3-4 days later, so we should trade cautiously and take great care to avoid significant losses.
Wishing you a good weekend!
