A revival of the Dollar? As we get closer to the election, investors and traders can see one thing in the future – uncertainty. Therefore, we can see market participants start preparing for the unknown.
As debates and the election come up, statements will be said, and policies will be announced to sway the markets significantly. Over the past five days, the Dollar index has rallied 1.28%. The demand for the Dollar may be pointed to investors and traders building up a cash position in their portfolios for two mains reasons
• To take advantage of significant markets swings; and/or
• Want to hedge against market slumps
Many institutional firms are backing the recent rally in the Dollar. Franseca Fonsari, head of currency solutions at Insight Investment, pointed to the election having the "potential to be a significant market mover" and that it would "probably [be] wise" to run lower levels of risk.
Furthermore, Shahab Jalinoos, Head of Currency Strategy at Credit Suisse, echoed Fonsari's comments. He stated that the U.S. election is a key risk that his team considers in predicting a stronger dollar. It is important to note, Shahab has been a bear for the U.S. dollar near the start of August – a point in the dollar decline where it had already depreciated around 7%.
Another currency strategist at Bank of America, Ben Randoll, also pointed to the "substantial economic and event risks ahead" and that he expects a "dollar rally into the election and possibly beyond."
As you can see – analysts are quick to turn their opinion around on a recent turn of event. All three analysts point to the election being a catalyst for the U.S. dollar while remaining bearish viewpoints before the rally. However, it has been clear for quite some time now that the election will be upcoming. Therefore, this is an excellent example of constructing your own analysis and validifying that analysis using technical and fundamental analysis. It's obvious to call a bull run when you're already in one.
I talked about the Dollar earlier this month, and how long term trends such as Inflation, Federal Reserve's Q.E., low-interest rates, and Gold's rise are headwinds pushing the Dollar further downwards. I stated that "Investors [and traders] do not want to hold it" – which I still believe is the long term trend. Future markets show this – showing that most investors and traders are still not betting on the Dollar rallying on the back of a "save haven" trade. Furthermore, put options on the Bloomberg Dollar spot index are still net short, showing a bear consensus.
Uncertainty is coming – stay safe, trade safe.