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Will It Be A Spooky Week For FX?

By Kathy LienForexOct 30, 2020 04:08PM ET
www.investing.com/analysis/will-it-be-a-spooky-week-for-fx-200542997
Will It Be A Spooky Week For FX?
By Kathy Lien   |  Oct 30, 2020 04:08PM ET
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Most of the major currencies traded lower against the U.S. dollar Friday as the Dow Jones Industrial Average tumbled more than 300 points. At one stage, stocks were down over 500 points but came off their lows by the end of the New York session. With only two more business days to go before one of the most closely watched elections ever, investors are reducing their positions in anticipation of big market moves. It’s a tight race with an outcome that may not be known until weeks after Nov. 3, the one thing that we can be certain of is that next week will be a volatile and possibly spooky one for currencies. 
 
In the 24 hours after the 2016 U.S. Presidential election there was a 300-point range in EUR/USD, a 450-point range in USD/JPY and a 500-point range in NASDAQ Composite. If either candidate refuses to concede on election night, we could see even bigger moves in currencies and equities. The euro fell the most this week, but that was not a surprise. The European Central Bank was widely expected to set the stage for easing in December and not only did it deliver but it said all instruments could be recalibrated at its next meeting. Even though Eurozone GDP numbers were better on Friday, EUR/USD extended its losses on the worry that the contraction in the fourth quarter will be steep. Earlier this week, Germany and France issued nationwide lockdowns. Today, Belgium announced strict restrictions to curb the virus. All non-essential businesses will close and schools will see their holiday extended until mid-November. While the outlook for the euro is grim, the main driver of market flows next week will be the U.S. election and the impact it has on risk appetite. 
 
There are three potential outcomes for Tuesday’s election – Donald Trump wins, Joe Biden wins or the votes are so close that neither candidate concedes. If Trump wins, stocks should rally and the U.S. dollar could rise. High-beta currencies should fall on the prospect of further tensions with nations abroad, while USD/JPY will rally alongside the move in equities. If Biden wins, stocks are expected to fall and the U.S. dollar could weaken. If there’s no clear winner, we expect broad-based risk aversion that will drive currencies and equities lower.
 
While the U.S. election will be the No. 1 focus next week, there are also three central bank meetings and labor market reports. The Federal Reserve and the Bank of England are expected to leave interest rates unchanged, but there’s growing belief that the Reserve Bank of Australia will lower interest rates. Considering that the RBA is meeting on election night, it may opt to wait until the election is over before easing to avoid its move being lost in market disruption. It's a pretty important week for the Australian dollar, with third-quarter retail sales, PMIs and their trade balance scheduled for release. The Bank of England also needs to ease, but with a Brexit deal still on the table (negotiators continue to talk), the central bank may choose to wait.
 
Employment reports are due from the U.S., Canada and New Zealand. U.S. companies are expected to hire back more workers in the month of October, but Canada, which reported very good job growth in September, could see give-back this month. New Zealand data should be strong, with the country eradicating COVID-19 for a second time in Q3.  
Will It Be A Spooky Week For FX?
 

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Will It Be A Spooky Week For FX?

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Comments (15)
Dan OGrady
Dan OGrady Nov 01, 2020 11:39AM ET
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Their are actually only 2 election result possibilities. 1. Biden wins in a complete landslide 2. Trump et al are successful enough at suppressing enough votes to make this a contested election. I am predicting result #2 which would mean flight to safety (higher dollar and gold) with lower equities
Wong Wei Chun
Wong Wei Chun Oct 31, 2020 7:30PM ET
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I think usd will drop due to uncertainties
Wong Wei Chun
Wong Wei Chun Oct 31, 2020 7:30PM ET
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stephen clark
stephen clark Oct 31, 2020 7:19PM ET
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thanks
Phil Kimmel
Phil Kimmel Oct 31, 2020 4:01PM ET
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If Biden wins the stivk market will go up. Why? Because interests rates are stillLow, low, low. Also Bidens businesses plans are better and more transparent. Trumps tough China deal? Actually the balance in btrade was about the same as last year. Trump paid more taxes in China than he did in the US. That's not right.
John Smit
John Smit Oct 31, 2020 4:10AM ET
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ECB giving away clues already...'recalibrated'  - "The European Central Bank was widely expected to set the stage for easing in December and not only did it deliver but it said all instruments could be recalibrated at its next meeting"
John Smit
John Smit Oct 31, 2020 4:09AM ET
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USD600 TRILLION in derivatives due for swap days after the election. The virus is just a distraction from the Great Reset about to unfold.
Carl Mordoh
Carl Mordoh Oct 30, 2020 11:02PM ET
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I have a bad feeling about these elections. I suspect Trump will lose and deny the outcome. I'm shorting the market on Monday. It's going to get ugly.
Carl Mordoh
Carl Mordoh Oct 30, 2020 11:02PM ET
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I have a bad feeling about these elections. I suspect Trump will lose and deny the outcome. I'm shorting the market on Monday. It's going to get ugly.
Alexis Martinó
Alexis Martinó Oct 30, 2020 5:50PM ET
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I bet usd up !
Joseph naquin
Joseph naquin Oct 30, 2020 5:47PM ET
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its 2020, alot has happened , and not much would be a surprise anymore, things do feel really awkward here lately, things like tornadoes and hurricanes in large numbers, massive fires and earthquakes, an election that has a entire government system falling apart, covid 19 world wide, churches get shut down for the first time ever in history, and the big one is the fact the market crashed and came back well within the same month...2020🤔🤔
MK MK
MK MK Oct 30, 2020 5:31PM ET
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Strange assumptions: stock rise and USD up? Stock down and USD do down???
Malibongwe tshemesi
Malibongwe tshemesi Oct 30, 2020 5:18PM ET
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Food for thought,,, Happy Trading everyone
Jabir Mahmood
Jabir Mahmood Oct 30, 2020 4:33PM ET
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Thanks
Ata Ahari
Ata Ahari Oct 30, 2020 4:10PM ET
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