FX.co ★ Currency markets remain calm while the stock markets are declining

The currency market practically remained calm before the US presidential election, contrary to the stock markets, which sharply declined today. As for the US stock market, it actually collapsed due to two important reasons – the absence of one (failed agreement on new stimulus package) and the growing influence of the other (coronavirus).

The first reason includes the failed agreement between N. Pelosi and S. Mnuchin on new economic measures to support the country, which caused US stock indices to decline. So, the industrial index DOW fell by more than 3.0% at the moment, while two other major indices S&P 500 and NASDAQ tried to keep up with it.

So why did the market collapse?

Investors are hopeful that an agreement would be reached on new measures to stimulate the economy and help the American citizens before the presidential election. The Fed, represented by its leader Mr. J. Powell, also stood up for this. In addition, investors were almost 100% sure that in any case, this would be agreed on after the elections.

It is clear that they believed that J. Biden will win and the Lower House of Congress will take this decision. However, the situation has changed. D. Trump, the current president, still manages to maintain good positions in the election race, and the chances of winning are still noticeably significant. This assumption especially increased after Amy Coney Barrett, which is believed to be a Trump supporter, was elected to the US Supreme Court.

This is the reason why the US stock market collapsed today, which pulled other trading platforms globally.

Another reason is the growing negative impact of COVID-19 in the United States and Europe. New records of cases, both infected and dead, caused a wave of fears for the standing of the world economy and the collapse of the stock market.

But what's interesting is that the currency market remained calm before the US presidential results. We can explain this by two reasons – uncertainty of who will win the elections as well as whether the economically important countries will have to close their economies again to a greater extent due to the COVID-19 pandemic. Taking this into account, we believe that the general condition will remain by the end of this week and the sideways dynamics in the currency markets will dominate.

Forecast of the day:

The USD/CHF is consolidating in the range 0.9030-0.9080. It will allow the pair to either continue to fall or grow if this range breaks down. Thus, we expect that a slight improvement in market sentiment after yesterday's sell-off in shares may allow the pair to rise to 0.9110, but only after breaking through the level of 0.9080. Otherwise, it will decline to 0.9030.

The USD/JPY pair found support at 104.70. An improvement in the market mood will lead to a local price growth to 105.10. Otherwise, it may fall to 104.35, implementing the "rising flag" trend continuation pattern.