The Moment of Truth

The information presented in this publication is purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should in no case serve as a basis or be considered as an incentive to engage in any investment.

The macro point

It is this week, a priori, that we will know the name of the next tenant of the White House. However, many uncertainties remain. The election may be contested, for example. It is therefore not unlikely that investors will favor safe havens, primarily the dollar and gold, while waiting for more clarity. In Europe, the macroeconomic situation is not encouraging. The latest statistics show that the recession in Germany is beginning to weigh on other European countries. In France, budget discussions are increasing risk aversion – households are not supporting growth, while companies are logically inclined to be cautious about investments. We estimate that the budget project presented by the government (which can be amended) will lead to a GDP decrease of between 0.8 and 1 point next year. This means that growth could be close to zero. It will not take much to cause a recession. If international trade slows down, this could harm exports – which have been a pillar of the economy – and trigger a recession. Southern Europe is not doing too badly. Unfortunately, this is insufficient to initiate a virtuous cycle in Europe. What is striking is that nothing seems to be able to allow an exit from economic stagnation. We are fortunate to have a decrease in the cost of borrowing occurring simultaneously with a drop in inputs in the production cycle (energy and industrial metals). But, alas, there is fiscal uncertainty and rising taxes on the other side. This situation will structurally favor capital flight in Europe, which is already being observed, and a weak euro. Although many factors come into play in the short term, a strong economy generally leads to a strong currency in the long term. This is precisely what is happening across the Atlantic. In the latest opinion polls conducted among American businesses and households, there is a slight wait-and-see attitude related to the presidential election – which is normal. However, all indicators are positive. While in France, potential growth fell after COVID to around 0.8%, it has increased to around 2.2% across the Atlantic. That says it all. How can the euro hope to sustainably compete with the dollar under these conditions?

Technical point

As the election approaches, Trump trades* are in full swing. The US dollar was significantly up in recent sessions against almost all counterparts, but especially the Chinese yuan, the Mexican peso, and the euro. The yield on US sovereign bonds also increased—which is a factor driving the dollar up. Volatility is beginning to increase in the foreign exchange market. Finally, emerging currencies are all down against the dollar as well as commodity prices. Of course, these Trump trades could be rapidly unwound if it becomes clear that Trump has lost. *referring to financial assets that could benefit from a Trump victory. The supports and resistances displayed below indicate respectively the low and high points within which the prices should fluctuate during the week.

	Weekly Supports		Weekly Resistances
	S2	S1	R1	R2
EUR/USD	1.0709	1.0745	1.0901	1.0922
EUR/GBP	0.8233	0.8279	0.8413	0.8445
EUR/CHF	0.9290	0.9323	0.9488	0.9503
EUR/CAD	1.4945	1.5001	1.5190	1.5222
EUR/JPY	163.33	164.98	167.11	167.34

Announcements to follow

Unsurprisingly, the American presidential election is obviously the main focus this week... It brings its share of uncertainties. The result is very difficult to predict as in 7 or 8 key states, the vote could swing one way or the other. This increases the possibility of a contested election and electoral unrest. The campaign has been verbally violent on both sides. Historically, hedge funds position themselves to buy the US dollar in the weeks leading up to the election. That is exactly what happened. In the wake of the results, they generally take their profits, which tends to cause the dollar to fall. This time it is not certain. Everything will depend on the outcome. It is not unlikely that we will see recounts in some states, numerous legal challenges, which means we will not immediately know the winner's name. In short, a potentially very volatile period is coming. In these circumstances, it is not excluded that investors will rush to safe havens: the dollar and gold, as a priority. The Federal Reserve will have the heavy task of lowering key interest rates again this week. Unless there is a disaster (example: riots etc.), we believe it will follow its roadmap and lower its key rate by 25 basis points. The Bank of England, which does not potentially have to manage a political crisis, should act similarly. Finally, Chinese legislators have been meeting since this morning, until November 8, possibly to discuss a fiscal stimulus plan. Many analysts believe that China could announce a plan if Trump is elected. Again, the uncertainties are numerous. We doubt, however, that China will carry out a devaluation of its currency (as some analysts suggest) in the event of Republican candidate victory. It is presented as a retaliatory measure against the implementation of tariffs amounting to 60% on all American imports from China. The key word this week: caution. Be sure to hedge your positions well. Volatility may not only concern USD pairs. Below you will find the publications and events that should have a major impact on currency movements.

Day	Time	Country	Indicator	What to expect?
November 5, 2024	X	USA	Presidential election	High volatility, possibility that the election will be contested.
November 7, 2024	13:00	UK	Central bank meeting	Probable rate cut of 25 basis points
November 7, 2024	19:00	USA	Central bank meeting	Central scenario: rate cut of 25 basis points