Created on November 05, 2024

• The EUR/USD exchange rate has settled just below 1.09 ahead of the all-important US presidential vote, but a Donald Trump victory would spark major selling pressure on the currency pair once again.
• By Wednesday, the outcome of the vote should be known, and if Trump wins, we expect EUR/USD to approach 1.0760 before the end of the week.
• However, a Harris win, which was seen as increasingly likely over the weekend, would extend the euro’s rally.
• Moreover, the euro starts this important week with a small gain against the US dollar as markets track the lower odds of a Trump win. A number of polls released over the weekend were more favourable for Harris, with one even suggesting she would pull off a surprise win in Iowa.

Overall, the decline in the odds in Trump’s favor would better reflect the uncertainty in the polls, with the margin of error still pointing to a 50/50 tie. The US dollar closely tracks the odds in the odds, having declared the winner 80% of the time in the past 35 years, rising when Trump’s odds are high and falling when his odds are low.

This speaks to the dollar-supportive policy mix proposed by Trump, which includes inflationary tariffs on imports. Accordingly, analysts at TD Securities say that a second Trump presidency would spark a major rally for the US dollar. “This would bring back memories of US exceptionalism, supported by tariffs, tax cuts (the red wave), deregulation and negative impacts on global growth prospects. A Harris presidency would bring some weakness to the US dollar as the Trump risk premium unwinds and a blue wave exacerbates the US dollar’s ​​decline,” the analysts said.

If Harris wins, the euro against the US dollar could extend its recovery to the 1.10 level. Valentin Marinov, an analyst at Credit Agricole, said: “The EUR/USD and GBP/USD pairs could fall to their lowest levels since the first quarter of 2012 or head lower in response to a Trump victory accompanied by a “red wave” in the US Congress. Conversely, their rise could be limited to 1.10 and 1.33 in the event of a Harris victory and a divided US Congress.”

According to stock trading platforms, US stock futures stabilize ahead of the presidential election. According to trading, US stock futures stabilized on Tuesday as investors prepared for the disputed US presidential election. Recent polls indicate a close race between Vice President Kamala Harris and former President Donald Trump, with markets also focusing on which party will control Congress, as a potential victory could lead to major shifts in spending and tax policies.

Investors are also awaiting the Federal Reserve’s policy decision later this week, when it is widely expected to cut interest rates by a more cautious 25 basis points. The Dow Jones Industrial Average fell 0.61% on Monday, the S&P 500 fell 0.28% and the Nasdaq Composite dropped 0.33%. Notable declines came from major technology stocks, including Tesla (-2.5%), Amazon (-1.1%) and Meta Platforms (-1.1%). In after-hours trading, Palantir Technologies surged more than 13% after posting strong quarterly results and an upbeat revenue outlook. Meanwhile, NXP Semiconductor shares fell about 6% after issuing a weak outlook, pointing to broader concerns about the macro economy.

EUR/USD Technical analysis and forecast:

Technically, the EUR/USD may remain in its current bearish range until markets and investors react to the U.S. presidential election results and the Federal Reserve’s policy decisions. Approaching the psychological support level at 1.0800 would reinforce bearish control, signalling a deeper downward move. Furthermore, a Trump victory could push the EUR/USD down to the 1.0660 support level as an initial target.

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Created on November 05, 2024

Potential signal:

I’m a buyer of this pair and have no interest in selling it. There are 2 scenarios that I see offering an entry into this pair. If we pull back to the ¥195 level, I’m a buyer. I would have a stop loss at the ¥192.50 level, and then would aim for a move to the ¥200 level. On the other hand, if we rally and break above the ¥200 level, then I would have a stop loss at the ¥198 level, and simply hang onto the pair for a move to the ¥206 level.

• In my daily analysis of the British pound against the Japanese yen, I noticed that we are in the midst of a major consolidation area.
• This of course isn’t surprising, because we do have an interest rate decision from the Bank of England this week, and that of course will have a major influence on where we go next.
• Nonetheless, I think we got a situation where the interest rate differential will continue to favor the British pound into the foreseeable future, so I still find this a market that I like to the upside.

Technical Analysis

The technical analysis for the GBP/JPY currency pair is somewhat neutral over the last couple of days, but I do see a significant amount of support near the ¥195 level, which is an area that has been noisy for some time. The 50 Day EMA is racing toward that area, and I think that is something that should be noted as it is a large indication of the overall trend. In other words, think that will be a lot of buyers there waiting to pick this market up, assuming that risk appetite doesn’t get eviscerated, nor does the Bank of England lose its mind somehow.

On the upside, I see the ¥200 level as a major barrier, but eventually we should break above it. Quite frankly, you get paid to hang on to this pair, much like my USD/JPY trade in my personal account, you can just simply hold onto it until something changes. I get paid at the end of every day to hold that trade, it would be just as comfortable with this one, although I’m the first to recognize that the Bank of England interest rate decision happening on Thursday isn’t the ideal problem to deal with.

At this point in time, I think you get a situation where it’s likely that any selloff will result in some type of buying opportunity, and that’s exactly how I would approach this market, given the chance. Between now and then, it’s just simply a matter of collecting swaps.

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Created on November 05, 2024

• At the start of trading this week, the GBP/USD exchange rate rose to 1.2998 before settling around 1.2950 at the time of writing this analysis.
• This comes as financial markets react to the increased probability of Kamala Harris winning the presidential election today, Tuesday.
• The odds of Trump winning in the overall betting market are now around 57%, below the high-water mark of 65% seen on October 30.

Furthermore, the US dollar generally tracks these odds closely, rising when Trump’s odds rise and falling when his odds fall. This speaks to the dollar-friendly policy mix proposed by Trump, which would include inflationary tariffs on imports. Several new polls released over the weekend were more favourable to Kamala Harris, with one even suggesting she would score a surprise win in Iowa.

The decline in the odds in Trump’s betting market would better reflect the uncertainty in the polls, with the margin of error still pointing to a 50/50 tie. Analysts said, “Recent polls suggest Harris has gained ground in swing states at the same time that Trump’s odds in the betting markets have continued to decline. Investors at Bull Market and Calci still see the former president as the front-runner. However, Predictit now has Harris winning the contest by a narrow margin,”.

Technical forecasts for the GBP/USD pair today:

Overall, we could have a result by Wednesday, and a Trump win is widely expected to boost the US dollar, while a Harris win would have the opposite effect. Moreover, some analysts believe that a Harris win could send the GBP/USD back to the 1.33 resistance. According to Credit Agricole Bank’s forecast, “EUR/USD and GBP/USD could fall to their lowest levels in Q1 2024 or head lower in response to a Trump win accompanied by a ‘red wave’ in the US Congress. Conversely, they could be limited to 1.10 and 1.33 in the event of a Harris win and a divided US Congress.”

Analysts at TD Securities say that a second Trump presidency could spark a major rally for the US dollar. This would revive memories of US exceptionalism, fuelled by tariffs, tax cuts (on the red wave), deregulation and negative impacts on global growth prospects. Furthermore, a Harris presidency would therefore bring some weakness to the US dollar as the Trump risk premium unravels and the blue wave of the US dollar weakens.

For the pound, the big event locally this week is the Bank of England’s decision on Thursday, when it is expected to cut interest rates by 25 basis points. The cut in sterling has been “in the price” for a long time and is unlikely to have an impact on the market. However, guidance on the possibility of another cut in December will be important.

If the Bank of England leans towards a second consecutive cut, the GBP/EUR rate will come under pressure. However, last week’s budget reduced the likelihood of a December rate cut and the market is now pricing in a quarterly pace of UK rate cuts, which is relatively supportive of expectations. Sterling is therefore expected to react more clearly to any implied future guidance. Moreover, the correlation between foreign exchange yields and sterling has been broken since the budget and higher yields have not helped sterling. However, higher growth and inflation are expected to reduce the Bank of England’s dovishness and support the currency.

The window of opportunity for the Bank to cut UK interest rates has opened up after last week’s budget, where the government announced a large increase in spending that analysts say could give the economy a “strong boost” next year. Fiscal expansion is inflationary in nature, meaning the Bank will have to respond by keeping interest rates higher for longer. Indeed, the Office for Budget Responsibility raised its near-term growth and inflation forecasts after the Budget, and we will be watching the same for the Bank of England. Any upgrades to inflation and growth would therefore be a strong signal that the Bank of England acknowledges that it will have to maintain tighter monetary policy. Obviously, this would support sterling. Also, the biggest risk to sterling would be a scenario in which the Bank cuts interest rates and heads for another rate cut as early as December.

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