US Presidential Election: FX Playbook - ING

Research Team at ING, lists down the scenario analysis for the US presidential race.

Key Quotes

“In the case of a Clinton win…

• USD retraces pre-election losses; re-couples with Fed expectations. Latest breakout of wage growth from post-crisis range means a Clinton win should see markets (fully) price in a Dec Fed rate hike
• USD/MXN moves to 18.40 but Fed factor limits downside. USD/JPY up to short-term fair value (107-108); EUR prices in ECB QE discount
• Scrutiny over Clinton’s presidential legitimacy (case 3 or 4) adds to US political uncertainty and puts a question mark over Dec Fed hike

In the case of a Trump win…

• USD/JPY would collapse to 90 under the ‘Trade Wars’ scenario given global protectionism fears and safe-haven JPY flows (recall USD/JPY dropped 10 big figures during the Lehman crisis)
• EUR/USD higher but upside potential more limited as the Fed re-pricing channel is partly offset by concerns for European exporters
• MXN to be the go-to short in the EM FX space under all Trump-victory scenarios, potentially testing the 21.00 level.”