Calm before the storm?

The main interest on the majors overnight has been the move above the 105.00 level on USDJPY, which has continued the weaker yen theme prevalent through most of the month. Data overnight showed the core inflation rate (ex-fresh food) remaining in negative territory at -0.5% YoY. On the crosses, EURJPY is nearly back to the 115.0 level, with the euro having found its feet into month end, both against the dollar and also sterling, which is crawling slowly back towards the 0.90 level. All this is against the backdrop of lower volatility overall as we head into the US Presidential election. Can this be the calm before the storm? If we look back over recent US elections, then there is a weak case for greater volatility after the event. Indeed, the dollar index range tends to be around 20% lower in the 10 days after the election compared to the 10 days before. But this time around things may be different, particularly if a Trump victory comes to fruition. On the latter scenario, it’s less the domestic implications that will matter (taxes, spending etc.), more what international investors think. This was the case with sterling both in the run-up to the Brexit vote (especially Jan/Feb this year) and also after the event. The same will hold true, not least because the dollar is the most international currency there is.

For today, US GDP is the main focus later in the day, the annualised figure seen rising 2.6%. This should not majorly impact the dollar, unless we see a substantial deviation from this expectation. Otherwise, we should see a relatively quiet end to the week.