The dollar is seen slipping further to start the session
Of course, things have changed a lot since then with Biden now inching closer to victory.
But since the surge higher in the dollar, buyers have failed to maintain gains and we are slowly seeing other major currencies claw back the move for the most part.
EUR/USD is now keeping a little higher on the session, trading up to 1.1740 levels upon breaking its 200-hour MA (blue line) earlier. Hence, buyers are now in near-term control of the pair though there is some resistance around 1.1742 for the time being.
AUD/USD has also pared earlier losses moving up from 0.7165 to 0.7185. Meanwhile, USD/CAD is also moving back towards the lows this week seen closer to 1.3000-10.
The dollar’s softness comes on the back of a continued rally in the equities space with S&P 500 futures now up by 1.2% and Nasdaq futures rallying by 2.1%.
While equity investors seem more assured of a risk-on move, the bond market is less so with 10-year Treasury yields down 3.5 bps to 0.727% – lowest in nearly 3 weeks.
The stimulus narrative appears to be what is driving the bond market now but there are still plenty of question marks for the market to deal with as well.
- Is the push lower in the dollar largely due to the election result nearing its end-game with Biden looking the favourite now?
- Is the market underpricing the potential risks of a divided Congress?
- Or is the market happy that this is the “good” kind of gridlock in Washington?
- What about the odds of the election result being contested and delayed for longer?
- How about the focus on the virus and how it is still eating away at the economy?
- Or is the central bank printing press enough to overcome all of this?