The U.S. dollar is slightly weaker this morning after gaining much of yesterday. The safe-haven gained during yesterday’s session as coronavirus cases spiked and the chances of a stimulus deal dwindled.
Overview
Equities had their worst day in a month but look to rebound slightly today despite any respite on the Covid or stimulus front. In fact, cases continue to rise among older people and both houses of Congress have left Washington without a deal.
The U.S. election is one week away, and traders are bracing for heightened volatility across all asset classes, especially if the outcome is not quickly apparent. Knee-jerk price movements may be a common occurrence next week. For the time being, traders appear to be comfortable allowing the greenback to settle into ranges as market participants position themselves ahead of the election.
Therefore, we do not expect data to cause any major swings. Durable goods for September is due out this morning and could test our theory. Consumer confidence and the Richmond Fed are due out at 10 a.m. Also, the first look at third-quarter GDP will be released on Thursday. The growth print is likely to be massive as the economy partially bounced back from a historically bad second quarter amid coronavirus lockdowns.
What to Watch Today…
- Durable Goods at 8:30 a.m.
View this month’s Economic Calendar
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EUR ⇑
EUR/USD was locked in a tight range overnight. European stocks bounced off recent lows even as most of Europe’s major economies weigh new lockdown restrictions. As we have mentioned before, another round of strict lockdowns now has less support from citizens, creating additional challenges for politicians and health officials.
COVID fatigue is not just an American occurrence and protests have popped up in many European capitals. The winter months may prove difficult in the Western Hemisphere and could give central banks the scope to increase monetary stimulus. The European Central Bank will meet on Thursday and are not expected to change policy.
However, we will be watching closely for clues as to their thinking for future meetings. Our base case is that the ECB will increase stimulus in December. The question remains “by how much?”
GBP ⇑
The British pound remains elevated against the U.S. dollar, about a 1.5% stronger since this time last month. However, the pound is slightly lower for the fourth day after reaching a six-week high on October 21st.
The sterling has found fits of strength when positive Brexit headlines have hit the wire and only limited losses on negative ones. The question remains, how long can this last? The EU and the UK are well past their initial deadline for a deal, but the two sides continue to talk.
A deal by mid-November continues to be expected by market participants which means some of the pound’s strength is baked into a positive outcome. Sterling gains to the upside might be limited. However, the farther the sterling gains pre-deal, the bigger the potential fall. Expect U.S. election headlines to dominate next week but we cannot lose sign of Brexit.
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