Institutional Insights: Credit Agricole, FX Client Survey Ahead OF US Elections

EUR, JPY, GBP, CHF and CAD

FX investors were bearish on the EUR but felt that many ECB-related negatives are already in its price. They further wondered what would be the trigger of potential further weakness of the single currency. Our clients thus followed with interest our discussion of the drivers of potential further escalation of sovereign debt risks in the Eurozone and their impact on the EUR.
Our clients further seemed to be still bullish on the JPY but believed that further BoJ rate hikes and thus a renewed currency rally were unlikely before 2025.
In that, several clients noted that a potential Trump victory in the US election could lead to a rerun of the FX price action from late 2016 that saw the USD rally across the board and especially vs the JPY after Trump’s win. Many clients further questioned the BoJ’s hawkish resolve given the softening economic outlook in Japan and fact that inflation was expected to remain in line with the bank’s target.

FX investors expected the GBP to continue to outperform the EUR for now but remained cautious on GBP/USD ahead of the US election. Some clients thought that the BoE easing would offer more meaningful support to the UK economy than the ECB’s own easing could help boost the Eurozone outlook. This was mainly due to the fact that the Eurozone lending channel has not been ‘operating properly’ in recent years while household and corporate demand for loans has been lacklustre.

Elsewhere, the CHF was seen as vulnerable to future SNB rate cuts even as FX investors agreed that any FX interventions to weaken the currency would be less likely under a President Trump scenario. Some clients saw the CAD as a USD- proxy that could recover in earnest once the BoC easing cycle comes to an end. FX investors were thus interested in the results from our historic analysis that suggested that the CAD closely followed the path of the USD during Fed easing
cycles in the past