Synopsis:

Goldman Sachs outlines three main market elements in the event of a Democratic win, highlighting an initial, modest USD retracement as macro fundamentals continue to support the dollar. Market reactions are expected to stabilize quickly, shifting back to economic data and Fed outlooks over political drivers.

Key Points:

1. Status Quo on Trade: With a Democratic win, market adjustments are expected to be swift, with trade policies largely maintaining the current stance, enabling a quick market reaction.
2. Macro and Dollar Strength Alignment: The recent USD strength aligns with US macroeconomic resilience and tariff risks; a Democratic outcome might lead to partial retracement, likely taking EUR/USD to around 1.0950. This would also affect currencies sensitive to China’s trade outlook, like MXN and CNH, though modestly.
3. Return to Macro Focus: After initial adjustments, markets are likely to shift back to macroeconomic fundamentals. Goldman expects the Fed’s upcoming decision to reinforce gradual normalization, keeping the USD relatively supported.

Conclusion:

Goldman Sachs anticipates a limited market impact from a Democratic win, with USD strength sustained by solid US macro data. Any retracement, especially in EUR/USD, MXN, and CNH, is expected to be moderate and short-lived, as markets pivot back to broader economic and Fed-driven factors.