What's the election trade?
Bank of America Global Research maintains a bullish bias on the USD, expecting a broad rally to unfold into the November elections.
"We expect a USD rally to unfold into the November election and have recommended long exposure against the more cyclical, higher beta parts of the G10 FX spectrum vulnerable to more turbulent market conditions...," BofA notes.
"Our broadly bullish medium-term USD view is predicated on (1) very low current levels of FX risk premium and a USD that has broadly undershot fundamentals in the context of high global uncertainty; (2) bullish calendar and event seasonals; (3) prospects for US data outperformance reflective of diverging US vs RoW virus infection trends; (4) short USD position liquidation potential; and (5) potential further loosening in global central bank monetary policy in response to recent unwanted FX appreciation," BofA adds.
