Markets froze in anticipation of the results of the US presidential elections, as only its outcome will determine the direction in which the US dollar will go. Many expect a sharp weakening in the currency, however, the latest macroeconomic data tell a different story. To add to that, the lockdown in many European countries does not give confidence to the bulls, because if earlier, there is a chance of growth in risky assets, the announcement of new quarantine restrictions have limited the upward potential in the market.
EUR/USD
The better-than-expected data on the US manufacturing sector led to another wave of decline in the European currency, so as a result, the EUR/USD pair returned to its weekly low.
The Institute of Supply Management said the Manufacturing PMI in the United States jumped to 59.3 points in October, while economists had expected growth to only 56.0 points. This sharp increase indicates that the manufacturing sector is recovering, in which all sub-indices have risen rather impressively.
But despite this, the US dollar did not rise strongly in the markets, mainly because the victory of Joe Biden in the presidential elections could seriously weaken the currency's position. If the Democratic Party wins and gains a majority in both chambers of the Congress, there is a high chance that the next stimulus package would amount to $ 2-2.5 trillion, which will inevitably lead to a decreased demand in the currency.
The worst scenario though is Biden's victory but loss of control in one of the chambers of the US Congress. In this, his party members may lose their positions, since parliamentary elections will take place along with the election of the head of state. Such would result in significant economic losses, in which the US GDP could lose about 0.5 to 1.0%.
However, this does not set yet the final direction of currencies, since there is still the ongoing lockdown in Europe, which negatively affects the economy. Although the EU's manufacturing sector is still in the saddle, its service sector has already failed, and it will only get worse. Therefore, only an improvement in macroeconomic indicators will lead to more confident demand for risky assets.
At the moment, there's no strong movement in the EUR/USD pair, but the bears will soon seek to break the support at 1.1615, as such will make it easier to bring the quote to the low of 1.1580. The main target though is the level of 1.1540, however, this is where pressure could ease in the European currency. Nonetheless, short positions will increase if Donald Trump wins the presidential election, but if Joe Biden comes out victorious, demand for the US dollar will decrease, which will return the euro to the level of 1.1660. Such will make it easier for the euro to reach the 17th figure, and a breakout from which will lead to a price of 1.1760 or 1.1835.
GBP/USD
The British pound remains trading in a sideways channel amid news that the UK government will expand aid to the self-employed in November. Minister of Finance, Rishi Sunak, said that support will increase from 40% of the trade profit to 80%, so the total fund that will be allocated for this purpose will amount to £ 4.5 billion.
The technical picture of the GBP/USD pair says the bears failed again to break below the support of 1.2855, which suggests that there are still many bullish positions set up at the level. Therefore, the focus of sellers will be at this level today, and if they finally manage to bring the euro below 1.2855, a further downward move will occur, in the direction of lows 1.2800 and 1.2745.
But if Brexit negotiations finally show progress, demand for the British pound will increase in the short term, which will lead in a breakout from the level of 1.2985. Such will result in active purchases of the trading instrument with an exit to the highs of 1.3060 and 1.3180.
AUD/USD
Today, the Reserve Bank of Australia lowered its key rate to almost zero, and announced a quantitative easing program that has an amount of A$ 100 billion. The bank said it came to this conclusion in order to reduce the yield of 5-year and 10-year government bonds within 6 months.
RBA governor, Philip Lowe, gave a more detailed explanation on this, saying that the easing of the policy reflects the bank's desire to ensure price stability, full employment and the well-being of the population. He said the bank is ready to buy bonds with a maturity of more than 10 years, however, it would depend on the market situation. In this case, the total weekly purchase volume of bonds will be in the region of A$ 5 billion.
As for inflation, this problem remains a cornerstone of the RBA's monetary policy.
Against this background, the Australian dollar declined in the market, in which the trading chart clearly shows a tense situation. The zigzag pattern of the quotes indicate the nervous state of traders, most especially since it is far from clear who will emerge victorious between the AUD and USD. Aside from that, the decision of the RBA casts doubt on the further strengthening of the Australian dollar, therefore, a downward trend in the currency has a higher chance of continuing.
So, a breakout from the support level of 0.7000 will lead to a sharp downward movement towards the lows of 0.6940 and 0.6905, but a movement above 0.7075 will strengthen the currency, leading it towards the highs of 0.7105 and 0.7150.