Greenback demand rises as US election nears, JPMorgan figures show

DEMAND for the US dollar surged last week as investors bet on a rally in the run-up to the US election, and this buying is likely to continue, said strategists at JPMorgan Chase, citing their proprietary metrics.

The most popular trades paired buying of the US currency in the options market with selling of the Singapore and Australian dollars, a sign that investors are hedging exposure to China-linked currencies.

There was also strong demand to buy the US dollar against the Mexican peso and the euro, the strategists said.

The flurry of buying has taken the greenback’s positioning towards neutral from short, after the US currency’s worst quarter on a trade-weighted basis since the end of last year. This leaves ample room for traders to add to their long positions ahead of the election, they added. 

“The election trade is here,” the strategists said. “Despite the US dollar-buying so far in October, overall dollar net length looks fairly neutral still. There is scope for more election hedging over the next two weeks.”

They estimated buying of bullish calls on the US dollar at nearly two standard deviations away from normal levels. 

Commodity Futures Trading Commission data showed that speculators have almost completely unwound the net US dollar short that they accumulated in July. 

Societe Generale’s chief FX strategist Kit Juckes on Monday (Oct 21) said: “The decks are being cleared of old positions ahead of US elections.”

JPMorgan also noted a pick-up in euro selling, with some put options targeting the euro depreciating to parity against the dollar. The risk of the euro sliding to parity has been mounting as presidential candidate Donald Trump threatens to expand US tariffs beyond China to Europe if he wins the vote.

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The JPMorgan strategists added: “We see scope for EUR/USD short to continue building out.” BLOOMBERG