DXY: Still 2-way trades – OCBC

USD broadly strengthened in the aftermath of Trump’s victory. Market reaction was well flagged and expected. Near term, we may still see USD supported, largely on tariffs, inflation and fiscal concerns. We also expect policymakers to be more vigilant of the potential policy risks associated with Trump as President. Hence, excessive, one-sided moves in FX markets may be countered with smoothing pressure. DXY was last at 104.80 levels, OCBC’ FX analysts Frances Cheung and Christopher Wong note.

Fed is not expected to deliver a 25bp cut at the meeting

“Elsewhere, China’s NPC (4 – 8 Nov) should not be written off. The meeting is likely to factor in US election risk premium and we believe Chinese policymakers should still be determined on delivering support measures to mend the economy and repair sentiment. Larger than expected stimulus may help to support sentiment and partially offset against CNH depreciation. Over the next 24 – 48 hours, we should expect FX to continue trading with 2-way risks as markets digest election outcome, including who takes the House and if existing lawsuits against Trump will have any implications.

“FX volatility should continue to ease but remain elevated relative to year’s average. Trump's threat on tariff is clearly one of the biggest risks that markets are concerned about, but we do not know how long it takes for those policies to be in place. That said, the uncertainty may be sufficient to keep USD/AXJs supported.”

“Daily momentum is flat while RSI rose. Resistance at 105.20, 105.60 levels (76.4% fibo). Support at 104.60 (61.8% fibo), 103.70/80 levels (21, 200 DMAs, 50% fibo retracement of 2023 high to 2024 low). Moving on, FOMC is on tap next (3am SGT Fri morning). We do not expect the election outcome to impact this particular FOMC meeting and still expect Fed to deliver a 25bp cut at the meeting. Focus is on the tone and language.”