Uncertainty Around US Elections Might Push Capital Flow Into Secure Instruments

At last check on Thursday, 5 November, the euro strengthened by 0.1 percent against the USD, trading at 1.17400. The DXY dollar index for December futures shows a near-zero shift and is at 93.373.

The trading session on the foreign exchange market had been very volatile the day before, with the EUR/USD pair dropping to 1.16026 and the DXY indicator rising to 94,330, facilitated by the uncertainty around the outcome of the US presidential election. It should be noted that as the distance between Democratic nominee Joe Biden and his opponent Donald Trump widened, global markets rose in confidence and demand for risky assets.

The situation is far from coming to an end, as Trump has already filed a lawsuit demanding that the counting of votes be stopped in Michigan and Pennsylvania, where observers from his campaign headquarters were not granted proper access to the opening and counting of ballot boxes. Trump’s headquarters are still preparing to pursue a Wisconsin recount.

If the details of the breach of the electoral law are indeed verified during the inspections, the sum of the results of the vote will likely to last for several months, which will contribute to the increase of tension in American society and may lead to riots. An overflow of capital into secure instruments, including the US dollar, Swiss franc and yen, can be anticipated with a high degree of volatility as the situation evolves.

As for the numbers, the final data on service PMIs for October were published yesterday in the United States, Germany and the Eurozone. This measure showed a 2.3 point rise in the United States, to 56.9 points, which was the highest value since April 2015. At the same time, similar measures declined in Germany and the Eurozone, but turned out to be better than analysts’ forecasts.

The Fed meeting and Jerome Powell’s press conference on its conclusions will be a main event on Thursday. The regulator is likely to keep the key parameters of monetary policy unchanged, although there will be interest in the Fed’s evaluation of the current situation in the American economy and its need for additional monetary incentives.

Furthermore, data on Eurozone retail sales and the number of initial unemployment insurance applications in the United States will be published today.

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The EUR/USD pair is consolidating between the range of 1.165 and 1.18. The 1.18 level can be retested if the 50-day moving average (50-SMA) is broken upwards. If the instrument fails to beat the line of 50-SMA, quotes can fall to 1.165 and below.

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