Foreign Exchange Online - Masakazu Sato's Practical Trading Techniques | Techno & Fundamental Analysis Predicting the Future of the 3 Major Currencies [This Month's Theme | One Year Until the U.S. Presidential Election. Outlook for Major Currency Pair
With expectations for progress in US-China trade negotiations and global monetary easing, the autumn forex market has been calm again. However, the day of judgment for President Trump, who is arguably the biggest source of volatility in financial markets, is approaching—the U.S. presidential election in November 2020 is now within a year. Based on the price movements since Trump’s election in the fall of 2016, let’s examine possible developments over the next year under different scenarios!
※This article is a reprint and revision of an article from FX攻略.com’s December 2019 issue. Please note that the market information stated in the text may differ from the current market situation.
Masakazu Sato’s Profile
Sato Masakazu. After working at a domestic bank, he joined BNP Paribas (formerly Banque Paribas) of France. He has held roles such as Interbank Chief Dealer, Head of Funding, and Senior Manager. Later, he served as Senior Analyst at FX Online, which boasts the highest annual trading volume. He has over 20 years of experience in the world of forex. He appears on Radio Nikkei’s “Stock Complete Live Commentary! Stock Show↑,” Stock Voice’s “Market Wide—Foreign Exchange Information,” and regularly distributes market information on Yahoo Finance.
President Trump who can tell a lie without hesitation. Could there be a truce in the US-China trade war?! What is the dollar-yen rise scenario?
The volatile market, driven by Trump’s tweets, has in fact stabilized to some extent, and in mid-September the market trend has been “from bonds to stocks.” The U.S. 10-year yield that fell to 1.48% in August rose to the 1.7% range by mid-September (bond prices fall), and the NY Dow once again recovered to around the all-time high of 27,000. Japanese stocks, which had languished for a long time, turned around, and the dollar/yen not only did not break below the 104 level but broke through the 108 level.
In the last issue, we discussed “Trump’s instruction manual,” but the August 26 tweet saying “China has called to resume trade talks; China probably wants to do something” was one of the triggers for the stock rise and yen weakness in September. However, at that time there is no evidence that China actually made such a call, and this tweet is said to be a “lie” or a “misunderstanding” Trump issued to stop the stock decline. Trump’s extreme statements are like trash talk that boxers use before matches. If Trump feels that his threats and insults Twitter posts are harming the U.S. economy and jeopardizing his chances for reelection in 2020, he calmly retracts previous statements and sometimes issues more lies or misstatements to halt the stock decline. As a result, U.S. stocks have remained high in a volatile but historically high range for about a year and a half. The dollar/yen, while not reaching the post-inauguration high of 118, has been confined to a narrow range of around 104–112 throughout 2019, with fluctuations continuing.
If Trump were to win reelection, there is a possibility that he would unilaterally halt or end the US-China trade war to drum up support for another term. The path of the US-China trade war led the Federal Reserve (FRB) and the European Central Bank (ECB) to cut rates in September due to the unclear prospects of the trade war. As central banks worldwide pursue monetary easing, if the trade war that once stood as a major reason for this easing were to end, a “Trump bubble” could form in 2020, the election year. Of course, it would be unlikely to stop the trade war unless China makes certain concessions, but President Trump’s “common sense” does not apply to him at all. In the current situation, where he faces the risk of impeachment due to the Ukraine affair, he will likely seek to boost stock prices and economic sentiment even more.
Therefore, this time we will examine how major currencies, including the dollar-yen, would move over the next year toward the November 2020 U.S. presidential election, categorizing into rising, flat, and falling scenarios.
