At the start of this week, the dollar continued the last week bullish moves across the FX board. Risk-off dragged the Aussie, NZD, and CAD further downside while Gold stays stable. Oil prices and the stock markets remain on the back foot with all eyes remain on the US election. Markets might squeeze in anticipation of the huge volatilities that should greet these high-impact market events.
For macroeconomics, today, PMI data for the major economies will be announced, especially the Euro-zone and the US. Later in the week, monetary policies from the banks – BOE and FED on Thursday after the election and the Reserve Bank of Australia earlier on Tuesday. On Friday, employment data in Canada and the US (NFP) will take the central stage after similar data is released in New Zealand on Tuesday.
The Brexit negotiation is expected to continue this week as well. UK wants to get all deals done before mid-November to allow to prepare the final papers ahead of the December 31 official exit. Meanwhile, the Pound Sterling started the week bearish, after a fast bearish gap which came as a result of the 4-weeks partial lockdown in the UK as a result of the virus. Whether a deal will be agreed upon or not, Brexit will continue to weigh in whatever decision GBP traders and investors would make.
Talking about the virus, partial lockdowns in Europe, and a massive second wave in the US is shooting down risk. This will most likely continue till the end of the year. The effect of Covid on economic recoveries would be a major talking point for the banks starting from this week. Further easing is expected in terms of fiscal and monetary policies in order to sustain recoveries.
Lastly, the biggest event by far this week is the US election. Final surveys from pollsters still suggest a triumph for the Democratic candidate – Biden. Current market sentiments expect a positive stock for Biden and positive USD for Trump. Meanwhile, there are other possible scenarios that include Trump making a shock win against expectation. A Trump win might have higher impacts on the markets and shoots the Dollar up against the bearish stock. Other scenarios include the Democrats or Republicans taking control of Congress or even an inconclusive one. Any of the last scenarios is also bearish for the stock markets and positive for USD as uncertainties would follow. Talk of a V-shape move for the dollar and a fast rally followed by a bigger and more extended decline for stocks. Currencies like AUD and NZD should move in the direction of the US stock market while EUR, Gold, CHF, and JPY might flow with the dollar.
The effects of the outcome of the election should be felt across the markets and would provide good trading opportunities. However, traders should wait till the road is clear (the outcome is confirmed) and avoid being in the crossfire of the election (during and before the outcomes).
This week is going to be very volatile from macroeconomics to central banks to geopolitics and of course the US election.
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