US Dollar: Positioning and election-led correction – Societe Generale

The Dollar remains weak following the US elections. Societe Generale’s Kit Juckes examines the decline after an initial sell-off in US equities and technology stocks gave way to a recovery. With US strategists pointing to a robust economy and a limited fiscal impact from a Democrat-controlled Congress, he suggests the Dollar’s retreat may prove temporary. Still, crowded long-Dollar positions and heightened geopolitical and economic uncertainty could leave scope for further losses next year.

US elections leave Dollar under pressure

"The suggestion is that as foreign investor appetite for Treasuries wanes, while appetite for US equities surges, the dollar rises with equity indices."

"So the dollar fell with the equity indices, but they have recovered their poise, while the dollar remains under pressure."

"On that take, nothing changes and we should buy the dollar dip, once positioning has been cleaned up."

"Add that to lopsided positioning among FX traders (lots of dollar longs, with notable shorts in the euro, the pound and the Australian dollar (but not the yen), and the current correction can go further."

"Overall, I’m minded to conclude that 1) the market was very long dollars and the elections are a catalyst for position reduction; 2) the level of economic, geopolitical and market uncertainty is very elevated, which points to choppy FX markets; And 3) if regulation, or party politics slow the US economy, then the dollar has plenty of room to fall next year, but it’s too early to conclude that is what will happen and in the meantime, I’m loath to get over-excited about this dollar correction while oil prices remain elevated and the conflict in the Gulf is unresolved."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)