The US dollar continues its decline ahead of the US midterm election
Thursday 1 January, 1970
Daily Currency UpdateAhead of the midterm election in the US, where voter participation is expected to be ample, the US dollar index is falling slightly -0.13% and the S&P 500 and Russell 2000 are falling marginally, -0.17% and 0.31% respectively. The financial markets are betting on a split congress result, usually referred to as ‘fiscal gridlock,’ which might result in a modest decline in long end interest rates and the US dollar. Market analysts warned that an unexpected outcome could trigger a massive unwind of long dollar positions and undermine the greenback. The technical levels to consider for today in the US dollar index, and given the mid-term election, are more extensive; 95.75 on the downside and 96.85 on the upside. The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3171 on the upside.
Key MoversAll eyes are on the US midterm elections, with voters deciding who will control congress. The USD/CAD seems repressed ahead of US midterm election and without much local data releases. Canadian building permits released a few minutes ago were better than expected at 0.4% vs. a read of 0.3%, and it represented an improvement compared with the previous month at -1.1%. However, the predominating bearish sentiment around oil markets, with WTI crude oil struggling near seven-month lows undermined demand for the Loonie. USD/CAD is trading slightly up; +0.10% this morning. The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3171 on the upside.
The Euro edged back above the 1.1400 handle through the trading session on Monday as investors took profits on the US dollar ahead of today’s congressional midterms in the US. Having met sustained pressure through the last three weeks, the 19-nation combined unit enjoyed some respite as investors’ focus turns to what could be the most critical US midterm election in 50 years. Pressure is building on Italy with European finance ministers agreeing with the European Commission that Italy needs to change its draft budget plan. The Commission will propose disciplining Italy on November 21st. The EUR rallied over the 1.1400 handle when it was reported that Italy’s Finance Minister, Giovanni Tria, signaled to EU ministers that he was working toward a compromise, but later said that the budget would not change, leaving the EUR only slightly up on the day. Italy is unlikely to give into peer pressure. The divergence in central bank monetary policy continues to cast a spectrum over EUR/USD and any potential for a move back through 1.1500. The technical levels to consider for today in the EUR/USD are 1.1335 on the downside and 1.1499 on the upside.
The pound’s upward trajectory was checked by the release of weaker than expected UK Services PMI data yesterday, which printed at 52.2 vs. 53.3 read, evidencing that business activity in the country’s dominant services sector has slowed to a seven-month low. However, the GBP/USD was the best performer in the G10 overnight, as weekend press suggest a Brexit deal is close. This positivity has intensified overnight, ahead of Theresa May’s Cabinet meeting. Some reports are suggesting that she will give ministers an ultimatum to back a draft deal, which includes agreement on the Irish border issue. GBP/USD is now trading at its highest level since October 22nd, flirting with a break of a 1.3100 handle ahead of the meeting. The technical levels to consider for today in the GBP/USD are 1.2922 on the downside and 1.3100 on the upside.
Australia’s dollar rises in a slightly more upbeat picture of the economy. The Reserve Bank of Australia left the cash rate at record-low 1.50% for a 25th consecutive meeting. Governor Philip Lowe said the economy was “performing well” and predicted growth would average 3.5% in 2018 and 2019, while jobless rate would drop to 4.75% in 2020 from the current 5%. The RBA’s statement of monetary policy due Friday is more eagerly awaited than usual, following Monday’s upbeat policy statement. The RBA pointed out “broad-based appreciation” of the US dollar while saying that the Aussie dollar is currently “in the lower part” of the range where it has traded in the past two years The technical levels to consider for today in the AUD/USD are 0.7175 on the downside and 0.7300 on the upside.
The NZD/USD gathered momentum on Monday and overnight, having opened at the start of the week at 0.6634. The pair edged higher towards 0.6679 as the US dollar came under pressure on the back of the midterm election in the US. It has tracked the AUD/USD higher as well. There is no local data due, but with the US midterm congressional elections approaching, it could still be a volatile next 24 hours for NZD/USD. Tonight, we will have the unemployment rate for the 3rd quarter. Additionally, on Wednesday afternoon, the Reserve Bank of New Zealand will announce the cash rate, which is expected at 1.75%, (the same as the previous announcement). The technical levels to consider for today in the NZD/USD are 0.6607 on the downside and 0.6727 on the upside.
- USD/CAD: 1.3050 - 1.3171 ▲
- EUR/USD: 1.1335 - 1.1499 ▲
- GBP/USD: 1.2922 - 1.3100 ▲
- AUD/USD: 0.7175 - 0.7300 ▲
- NZD/USD: 0.6607 - 0.6727 ▲