BNP thinks that USD correction could run further. Where to cover?

"The sharp fall in USDCHF over the past 24 hours has encouraged us to take profit on our USDCHF put spread recommendation from last week for a 1.7% gain. We recommended the trade noting a rapid increase in USD long positioning and pricing for a Fed December hike.

The USD correction could have further to run but risk reward favours covering this trade at this time. Increased pre-election financial market volatility has led rates markets to pare back pricing for a December rate hike, even as the manufacturing ISM improved in line with expectations. We have been wary heading into a period of elevated data, Fed and election-related uncertainty.

Ahead today, we expect the statement following the FOMC meeting to continue to steer markets towards pricing a December rate hike. However, with a hike in December still nearly 70% priced in, we would not expect cautious and data-contingent Fed guidance to push rate differentials much further in the dollar's favour. We look for the USD to make a more durable recovery later in November as election uncertainty passes and data continues to signal scope for renewed tightening".

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