FX Week Ahead - Top 5 Events: Georgia Senate Runoff Elections; Eurozone & Mexico Inflation; Canada & US Jobs

01/05 TUESDAY | 12 GMT | USD Georgia Senate Runoff Elections

With the Georgia Senate Runoff Elections on Tuesday, the composition of the next Senate will be known shortly thereafter, as will the state of gridlock in Washington, D.C.. A Democratic sweep (creating a 50-50 tie in the Senate, resolved by Democrat Vice President-elect Kamala Harris’ tiebreaking vote) would likely mean much more fiscal stimulus, and thus more pressure on US real yields, which has been negative for the US Dollar over the past nine-plus months.

But in the likely scenario that a Republican sweep keeps control of the Senate in Republican hands (51-49 or 52-48 margin), the prospect for more fiscal stimulus subsides fairly quickly, and so too does a significant downside pressure cultivating negative real US yields. Given how the market has been maintain a net-short US Dollar positioning in the futures market, a break in the negative-USD news flow could provoke a short-term reversal in the DXY Index at the start of the year – even if the prevailing, long-term view remains bearish.

IG Client Sentiment Index: USD/JPY Rate Forecast (January 4, 2021) (Chart 1)

FX Week Ahead - Top 5 Events: Georgia Senate Runoff Elections; Eurozone & Mexico Inflation; Canada & US Jobs

FX Week Ahead - Top 5 Events: Georgia Senate Runoff Elections; Eurozone & Mexico Inflation; Canada & US Jobs
USD/JPY: Retail trader data shows 66.20% of traders are net-long with the ratio of traders long to short at 1.96 to 1. The number of traders net-long is 3.00% higher than yesterday and 6.86% higher from last week, while the number of traders net-short is 20.05% higher than yesterday and 10.39% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.

01/07 THURSDAY | 10 GMT | EUR Core Inflation Rate Flash (DEC)

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