CS: G10 SPOT – QUICK ELECTION PREVIEW

From the FXWW Chatroom: Binary outcomes for the state of the G10 universe.

CLINTON WIN: high probability and almost a done deal in my opinion. Due to the specialities of the electoral college seats system, the Florida vote (12:30 LN time) is key – and if Clinton wins this swing state, her win is effectively a done deal, according to experts.  My favourite trade is short EURCAD in this scenario. Trump risk premium has largely been priced into the market via lower CAD and higher EUR – we have had a 500pip rally off the lows in EURCAD in just a few weeks. Positioning in CAD is at extreme short level amongst all client sectors – HF, RM and locals. In a risk-on scenario I expect USDCAD spot to trade towards 1.3150, with EURUSD coming off towards cycle lows around 1.0900 which puts EURCAD near 1.43.  Downside OTs 2wk-1month seem cheap.

TRUMP WIN: a combination of long EUR, JPY and CHF vs a basket of AUD,NZD and CAD seems best. With CAD positioning at extremes, short NZDCHF or NZDJPY as a play on the sharp unwind of carry trades may offer better value. With EURCHF trading consistently below the previously highlight 1.08 “soft floor” the market will be keen to test SNB’s resolve in a risk-off environment. EURUSD topside in this scenario would look very vulnerable as well, with 1.14-1.15 potentially trading over the next 2 weeks.  USDJPY will flirt with 100 level, and given the tremendous significance of this pivot – a one-two day close below this would trigger a more severe panic with a move towards 95 likely into year end.

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