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The US dollar is on hold waiting for midterm election results tomorrow

By OFX

The US dollar is trading flat today while we wait for the U.S. midterm elections, which will dictate the week ahead. According to the Bank of America Merry Lynch, a split congress should produce a fiscal bottleneck, while the status quo should be supportive of the US dollar index. After seven weeks of gains in the US dollar index, market participants took profits last week. This U.S. midterm election may propel a new round of volatility for global markets. According to Reuters, there was a dollar selloff in the second half of last week, and hedge funds added to their dollar holdings taking net long positions to its most significant levels since December 2016 as the latest data has encouraged more bullish bets.

On the release side, the ISM Non-Manufacturing PMI was published at 10:00 ET today, and we had lower numbers at 60.3 in October than the previous at 61.6 in September. However, it was higher than the forecasted number at 59.

The technical levels to consider for today in the US dollar index are 96.40 on the downside and 96.68 on the upside. The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3140 on the upside.

The USD/CAD has seemed to be stuck in a range of 1.3016 to 1.3169 over the last 18 days, despite the hawkish tone of the Bank of Canada Governor Poloz last week in all his presentations. However, the ongoing bearish slide in oil prices undermined the Loonie, as it is holding the downside. Market participants will look forward to the ISM Non-Manufacturing PMI for some clues about the direction of the USD/CAD.

Early today Mr. Poloz gave a speech in the Canada–UK Chamber of Commerce. He mentioned that the most critical signal that financial markets are now sending is the reversal of the long-standing trend toward low bond yields, Governor Poloz also said. “A decade of massive monetary policy intervention is finally taking the risk of deflation off the table.”

The technical levels to consider for today in the USD/CAD are 1.3050 on the downside and 1.3140 on the upside.

EUR/USD pushed above 1.1450 on Friday as investors seemed positive about a potential US/China trade deal. It then ran into a series of big offers above this level and quickly retreated, taking a further knock on the back of the stronger than expected jobs report from the US on Friday afternoon.

Europe is trying to understand what went wrong in 3Q 18. Growth disappointed at 0.2% quarter on quarter as investors are left wondering if the result is a one-off. The German industrial production and retail sales for September released this week may shed some light here. We’ll also see more PMI data across the region, but the recent release of low Italian GDP in 3Q 18 and another manufacturing PMI below 50, could potentially cause further budgetary conflict between Italy and the EU.

The technical levels to consider for today in the EUR/USD are 1.1350 on the downside and 1.1425 on the upside.

The market sentiment is beginning to turn in Sterling's favor, and we see that GBP/USD is trying to stay above the 1.30 handle in the last three trading days. This is probably the result of the U.K. Brexit Secretary, Dominic Raab, voicing his expectation of a November 21 deal. However, market participants have a good reason to stay circumspect until a deal is done. Many Brexit challenges continue, including a tricky solution to the Irish backstop impasse. The UK government is expected to respond to European Union proposals for customs arrangement to avoid a Northern Ireland border.

According to Bloomberg, with markets not fully pricing a rate increase until November 2019, if not for Brexit, the Bank of England would have a strong case for more aggressive rate hikes. The cost of hedging against further pound declines versus the US dollar and Euro, dropped to the lowest since September which is helping the Sterling positively. On the release side, there is some disappointment for the sterling bulls, because the services PMI have fallen from 53.9 points to 52.2, instead of printing at the 53.3 points as forecast.

The technical levels to consider for today in the GBP/USD are 1.2950 on the downside and 1.3050 on the upside.

The Australian dollar was bolstered last week by the release of a better than expected trade balance surplus in September. The currency naturally got a boost from investor optimism for a US/China trade deal, and AUD/USD has pushed through 0.72 handle at least for one day on November 2. It then gave up these gains when New York came online, and the stronger than expected US jobs report was released.

Direction will now be dependent on tonight’s interest rate decision, where it is broadly expected that the Reserve Bank of Australia will keep interest rates on hold. On the release side, the Melbourne Institute inflation gauge rose by 0.1% month to month in October; the prior was at 0.3%.

The technical levels to consider for today in the AUD/USD are 0.7180 on the downside and 0.7221 on the upside.

The ANZ Commodity prices were published in line with expectations at -2.4% last night, and it is declining for the fifth month. The ANZ Commodity prices measure the change in the global price of exported commodities, and a number greater than the forecast is usually good for the Kiwi.

For Wednesday afternoon, the Reserve Bank of New Zealand will announce the cash rate, expected at 1.75%, which is the same as the previous announcement.

The technical levels to consider for today in the NZD/USD pair are 0.6635 on the downside and 0.6700 on the upside.