Overall, overnight markets took on a more risk-off tone, with equities falling and the Dollar strengthening.

The key takeaway from the RNC convention, amid rumors of Biden stepping aside, was the unequivocal "America First" and a potential tariff double-down on China. This rhetoric put a bid under the dollar, particularly pronounced in USDJPY.

As for the BoJ's next step toward policy normality and its impact on the Yen, FX traders shouldn't start measuring for new drapes just yet.

In Asia, FX markets saw a steady drift higher in USDCNH, reflecting an array of gloom—economic woes or the prospect of four years under the Trump tariff hammer. Feel free to pick your poison pill.

China concluded its Third Plenum meeting for long-term economic plans. While the communique possibly signaled more stimulus to support the economy, it fell well short of providing any significant catalysts. The Yuan is flapping in the wind without any firm and immediate positive read-through for FX markets.

Perhaps this week's biggest FX story is what a Donald Trump presidency would mean for the dollar. The consensus is that fiscal policy would be looser under a Trump administration, the US yield curve should be steeper, and the dollar would likely strengthen. Yet, the FX part is far from certain, especially with Trump's recent interview with Bloomberg taking a potshot at the undervalued Japanese yen and Chinese yuan.

But, Mr. President, you know you can not have your cake and eat it too. Loose fiscal policy combined with a trade war directed at China will almost certainly put a bid under the dollar, as we see today.

While we still think macro factors will carry the FX baton in the short term, after the July FOMC, full-on US election risks could drive the markets. Hold onto your hats, folks—it's going to be a wild ride!

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