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After the election, the U.S. dollar depreciated

November 09, 2020 11:30

After election, U.S. dollar depreciated

Last week everyone's attention was focused on the U.S. presidential election, which lasted all week because of the counting of votes received in the mail. The media began officially announcing the winner on Saturday, which was Democrat Joe Biden.

Nevertheless, Donald Trump has repeatedly spoken publicly and has already taken legal action to recount votes in some states where dominance was extremely low. How this will affect the overall situation and whether it will prevent the approval of the new President remains unclear.

Along with the U.S. presidential election, a vote was held for the composition of the country's Congress. For the time being, the fate of this institution remains in a deadlock, with no candidate gaining 50% of the vote in several states, leading to a second round, likely early next year.

Regarding the Senate, it is now known that Republicans have secured 48 seats and Democrats have secured 46 seats. There are a total of 100 seats. A majority in the Senate is an important variable in passing laws and implementing White House goals, so it would be extremely beneficial for the President's party to be consistent with a majority in the Senate.

USD

U.S. economic data was positive:

  • The ISM industrial sector PMI reached 59.3 points and suggested growth
  • 638 thousand new jobs were created in the labour market
  • The unemployment rate fell from 7.9% to 6.9%
  • The number of new jobless claims remained stable at 0.75 million a week

The U.S. Federal Reserve did not change interest rates and did not change the scope of the quantitative easing program.

The coronavirus is setting new records and spreading rapidly:

  • In the U.S., a record number of illnesses of more than 100,000 per day were recorded for several days in a row
  • In India, the number of cases has stabilized at 46,000
  • In Brazil, it has fallen to an average of 16,000 in the last 7 days
  • New records are also being set in Russia, with more than 20,000 cases

On the Old Continent, despite all the new restrictions and constraints, further rapid growth was recorded in all major economies.

Euro

The main currency pair, EUR/USD, rose to 1.187, reflecting the depreciating dollar and growing risk appetite in financial markets. Among the economic data was the industrial PMI index, which stood at 54.8 points, while in Germany it was even stronger at 58.2 points. Old continent retail sales rose 2.2% year-on-year and showed a recovery.

The EUR/USD pair ended the week up 2.0%.

JPY

The top Asian pair, the USD/JPY, continued to depreciate, reaching the 103.4 level by the end of the week, its lowest level since March. The industrial PMI was at 48.7 and for services, 47.7 points, with both remaining in negative territory. According to September data, household spending was -10.2% lower than a year ago and has been in the negative for 12 months in a row.

USD/JPY ended the week depreciating -1.2%.

GBP

The British pound reached 1.315 against the U.S. dollar. The economic data was as follows:

  • The manufacturing PMI index was at 53.7 points and for services, 51.4, both in the positive
  • There was also a meeting of the country's central bank, during which interest rates remained unchanged and remained low at 0.1%
  • The quantitative stimulus program was increased to 875 billion GBP

GBP/USD ended the week appreciating 1.6%.

Economic events

This week will start with German international trade data. The rest of the week will look like this:

  • Tuesday: the results of the U.K. labour market and the indicators of the German and European ZEW economic index are expected
  • Wednesday and Thursday: investors will be monitoring the changes in the English economy, the volume of industrial production.
  • Thursday: U.S. inflation data for October will also be expected
  • Friday: a preliminary change in the Old Continent's economy in the third quarter and labor market performance

According to Admiral Markets market sentiment data:

  • 18% of investors have long positions in the EUR/USD pair (down -54 percentage points compared to last week's data)
  • In the main Asian pair USD/JPY, 84% of investors have long positions (up 25 percentage points)
  • In the GBP/USD pair, 30% of participants are expecting a rise (down 15 percentage points)

Such market data is interpreted as an opposite indicator, so EUR/USD and GBP/USD are expected to rise and USD/JPY to fall. The analysis of positioning data needs to be combined with fundamental projections and technical analysis.

Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com


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