The Dollar Comes Under Pressure
by Bogdan Giulvezan
The US Dollar lost ground against its major counterparts throughout last week, as the Biden – Trump political battle unfolded. However, global stocks were boosted by expectations that trade ties around the world would become stronger following Joe Biden’s victory.
Considering the trade war waged by the Trump administration, especially with China, a Biden presidency for the next 4 years is largely viewed as a shift from the current approach. Less tension between two of the world’s largest economies (U.S. and China) would largely benefit the overall market sentiment and would support a rise in risk appetite.
Although Joe Biden is the President-elect, the battle seems far from over as President Trump is contesting the result of the votes and has already filed lawsuits in key states, to contest the tallies. This will likely bring volatility over the next few weeks or until the matter is settled.
The Week Ahead
The political scene will take center stage and will probably overshadow the economic releases, just how it happened last week when the U.S. Non-Farm Payrolls posted better than expected numbers but the US Dollar remained largely unfazed. However, we need to be aware of some events that may have an impact on the FX market:
Thursday, November 12 at 1:30 pm GMT, the U.S. Consumer Price Index (CPI) will be released, showing changes in the price of services and goods purchased by consumers. The expected change is 0.2%, and because the indicator acts as a gauge of inflation, higher numbers usually benefit the US Dollar. Keep an eye on the Core CPI version (excludes food and energy from the calculation), released at the same time, and expected to post a change of 0.2%.
The same day the ECB Forum on Central Banking will take place and will be attended by ECB President Lagarde, BoE Governor Bailey, and Fed Chair Powell. They will be participating via satellite due to the current pandemic situation but their panel discussion that may trigger volatility. The scheduled time is 4:45 pm GMT.
Chart Analysis – EUR/USD
After showing strength in late October, the US Dollar was negatively affected by the turmoil created by the Presidential election and failed to break the support located at 1.1615. As you can see from the Daily chart below, that level also coincides with the 100 periods Exponential Moving Average, which makes it that much stronger.
The confluence zone created by 1.1615 and the 100 EMA acted as a springboard and the pair is now trading above the bullish trend line that was originally broken in late October. The next destination seems to be 1.2000, which is a psychological and technical resistance but keep in mind that as long as the pair remains between 1.2000 and 1.1600, the market is in range mode from a larger timeframe perspective; on the lower timeframes, trends may develop. Also, note that any new developments related to the Presidential “battle” may affect the movement of all or most US Dollar pairs.