The euro and pound came under pressure from a stronger dollar on Tuesday. If the British currency has found a reason to strengthen today, the single currency of the bloc continues to be impressed by weak economic statistics from Germany. Also, European countries are reintroducing lockdowns to contain the second wave of coronavirus.
The deterioration of risk appetite and the appeal of investors to a safe haven can open the way for the dollar to go up. On the side of buyers of the US currency, the suspension of tests of the drug for COVID-19 by Johnson & Johnson and Eli Lill. The overall picture for the dollar index remains unchanged. The balance remains within the range of 92.50-94.00.
However, the dollar still has more reasons to decline. House Speaker Nancy Pelosi has once again blocked the White House's proposal for economic stimulus. In response, Senate majority leader Mitch McConnell said the Senate would vote on a more limited aid package. If it is indeed agreed, the dollar's sell-off may resume with renewed vigor.
The focus is on the election race. The third of November is approaching, and according to national polls, incumbent President Donald Trump is far behind his democratic rival Joe Biden. If everything is roughly clear about the incentives – they will be accepted regardless of who becomes president, then Biden's victory itself will probably put significant pressure on the dollar.
The fact is that it will be about the victory of the Democratic Party as a whole, whose political course is associated with a more expensive national currency. But it's too early to guess, with the Tennessee debate scheduled for October 22. The balance of power may change significantly.
Meanwhile, investors seem confident that Biden will win. This is indicated by the dynamics of the VIX futures curve, which takes on a more classic shape.
Earlier, investors feared that the losing candidate would challenge the election results.
Bidders bet on the increase in volatility expected after November 3 and bought November and December VIX futures.
Such expectations provoked a sharp increase in contango in VIX futures. The spread between November and December futures jumped to 3.5 p. After the poll showed an increasing gap between Biden and Trump, the probability of a clean Biden victory increased. It is unlikely that Donald Trump will have grounds to challenge the results of the vote in this situation. As a result, investors reduced their long positions in both November and December VIX futures.
The difficult situation with the coronavirus in the world may act as a deterrent to the increase in the value of the dollar. The number of infected people is growing rapidly, while no country has completed vaccine trials. The deterioration of the epidemic situation in the States will create an additional risk for the economic recovery, which may negatively affect the dollar.
As for the pound, today it managed to restore positive dynamics against the dollar due to Brexit news. The UK will not break off negotiations with the EU after October 15, and the dialogue will continue in an attempt to find a way out of the impasse.
If you look at the technical component of the GBP/USD pair, yesterday's fall below the important support of 1.30 did not have any structure. The pound often recovers positions after such a downward momentum, and very quickly.
To talk about a trend reversal, you need a downward correction to at least 1.2950. Next, the targets will open in the area of 1.2730 and 1.2650.