The US dollar weakens as Trump faces a divided congress
Wednesday 7 November, 2018
Daily Currency UpdateA bearish US dollar narrative is forming out of the midterm elections. The results came in almost as many had anticipated and the immediate impact on markets should be as expected - the US dollar falling. Democrats took control of the House of Representatives, while Republicans retained their grip on the Senate, as millions of voters went to the polls on Tuesday to provider their first national verdict on the Donald Trump presidency. According to Bloomberg, the fundamentals for US equity and dollar outperformance are rapidly being eroded and the midterm results feed that narrative. In general, the opportunities for further fiscal stimulus to further improve US assets are fading. The technical levels to consider for today in the US dollar index, and given the mid-term election results, are more extensive; 95.48 on the downside and 96.00 on the upside. The technical levels to consider for today in the USD/CAD are 1.3012 on the downside and 1.3098 on the upside.
Key MoversThe Loonie is higher this morning for two reasons: a weak US dollar and a bounce in crude's price. The price of oil bounced this morning from new lows not seen since April 2018. Its price is up this morning, 1.8% to US$63.15, after a severe downtrend since October. Crude touched new highs at the beginning of October at US$77 per barrel, but it reached a seven-month low in the mid-61s yesterday. Regarding economic data releases, the building permits month-to-month in September were better than expected at 0.4% vs. a 0.3% read. Canada will announce the Ivey Purchasing Managers Index for October today at 10:00 am ET, which is likely to improve to 50.9 from 50.4 points. On Thursday, Canada releases Housing Starts. USD/CAD is falling by 0.5% in part due to a weak US dollar, which according to Bloomberg, is because the fundamentals for US equity and dollar outperformance are rapidly being eroded after the midterm results. In general, the opportunities for further fiscal stimulus to improve additional US assets are fading. The technical levels to consider for today in the USD/CAD are 1.3012 on the downside and 1.3098 on the upside.
EUR/USD hit a new two-week high of 1.1499 this morning because of a bearish US dollar narrative forming out of the midterm elections in the US. The Euro is trading back towards previous low levels last seen in May and June (very close to the 1.1500 handle). Strong gains across Europe’s service sectors and an uptick in German factory orders also helped underpin the Euro upside. In the meantime, Italy’s government called for a vote of confidence yesterday, as it faces tensions among its own members, mostly on the subject of rights and restrictions of asylum seekers. This could potentially upset the single currency’s march higher. The technical levels to consider for today in the EUR/USD are 1.1458 on the downside and 1.1515 on the upside.
GBP/USD wobbled a bit on the back of a few Brexit related headlines yesterday. Theresa May held a cabinet meeting in the hope of getting some agreement on a draft deal and compromise on a plan for the Irish backstop. No decisions were made, but at least there were no walkouts. Ministers were also told to expect to be summoned again soon, at which point they may be asked to endorse a plan. As Dominic Raab left the meeting, he gave a thumbs up, which was enough to move GBP/USD a few points higher on the day. More generally, given there was no negative news arising from the meeting, hopes remain for a deal being drafted and completed soon, which in itself was enough to lend support to the pound. GBP/USD has since broken through the 1.3100 inter-bank figure, and it is holding gains for now after it touched an intraday high of 1.3175. A weaker USD helped the Cable push through 1.3100 as well, which was a result of the Democrats taking a majority in the House and the Republicans holding the Senate in the American midterm elections, a definite blow to the Trump administration. The technical levels to consider for today in the GBP/USD are 1.3118 on the downside and 1.3250 on the upside.
AUD/USD has pushed higher over the last 24 hours, which was mostly a result of a weaker dollar due to the midterm election results. There wasn’t any Australian data released overnight and so AUS traders took their cue from the US elections, mostly. The technical levels to consider for today in the AUD/USD are 0.7258 on the downside and 0.7318 on the upside.
The Kiwi dollar has been one of the best performing currencies since last night, going higher after the release of much better than expected quarterly employment data. The unemployment rate printed at 3.9% vs. expectations of 4.4%, with all other iterations of employment data including average hourly earnings all printing way above market forecasts. NZD/USD is up more the 270 pips in November and has continued to push higher through the last few hours. This morning, it is trading at 0.6780, after touching highs of 0.6789. This latest employment beat will no doubt continue to support the Kiwi into the end of the week and in the near term. The technical levels to consider for today in the NZD/USD are 0.6750 on the downside and 0.6851 on the upside.
- USD/CAD: 1.3012 - 1.3098 ▼
- EUR/USD: 1.1458 - 1.1515 ▲
- GBP/USD: 1.3118 - 1.3250 ▲
- AUD/USD: 0.7258 - 0.7318 ▲
- NZD/USD: 0.6750 - 0.6851 ▲