FX market prices an increased possibility of Trump Victory – Nomura

Research Team at Nomura, suggests that the risk of Trump Victory scenario is likely viewed as higher since last Friday, and FX market prices are an increased possibility in this scenario now.

Key Quotes

“Since last Thursday, low-yielding currencies (e.g., CHF, JPY, and EUR) have performed strongly without much positive news for them, while commodity currencies trade weakly. Our estimate shows that the trend is likely to accelerate under a Trump victory scenario.

JPY is likely to be the clear outperformer. USD/JPY is estimated to depreciate around 5%, suggesting a risk of USD/JPY testing 100. Our estimate still shows GBP can also benefit from Trump victory, but we doubt this result, as GBP is unlikely to be judged as a proper safe haven currency at the moment. Thus, EUR and CHF are likely to perform more strongly than GBP under the scenario. The estimate shows only around 1% appreciation of EUR and CHF against USD, but more appreciation is likely, as positioning data still points large EUR short positions. In addition, as the election date approaches, we would not be surprised if FX sensitivity to US politics increases more than our model suggests. EUR appreciation is still more likely to be smaller than JPY appreciation, in our view.

The estimate suggests AUD can depreciate by nearly 3% against USD. As we explained in the baseline scenario, CAD underperformance could be more prominent than the estimate suggests.”