The “Blue Wave” was more like a “Blue Trickle”. The US Democrats regained control of the House of Representatives, as widely anticipated, but not to the degree that was forecast. Instead of picking up 40 seats, they got 26. The Democrats also lost seats in the Senate.
Some media are spinning the Democrats gains in the House as a repudiation of President Trump and his administration. FX markets saw the Democrat gains as a reason to sell US dollars. The greenback opened in New York with losses against all the G-10 majors, compared to yesterday’s 5:00 pm closing levels. Democrats are considered to anti-business, and pro-tax, which may stifle US economic gains for the next two years.
The US elections dominated overnight trading except in New Zealand. Better than expected employment data, including a drop in the unemployment rate from 4.5% to 3.9%, powered NZDUSD to a 1.62% gain. Traders are waiting for the RBNZ policy meeting statement after today’s close.
EURUSD broke above the downtrend line from September when prices rose above 1.1430 setting the stage for additional gains to 1.1550 and then 1.1620. The rally was helped by a 0.8% gain in September Eurozone Retail Sales (forecast 0.7%, August revised higher to 2.2%) and a 0.2% gain in German Industrial Production. However, ongoing Italy budget concerns and the risk of a hawkish FOMC statement tomorrow may temper gains.
Sterling extended yesterday’s gains rising from 1.3075 to 1.3173 on rumours that UK Prime Minister Theresa May is close to announcing a Brexit deal. The news is squeezing short GBPUSD positions. However, the Irish Prime Minister doesn’t believe a deal is imminent, and the Irish border issue is still a major hurdle. GBPUSD got an added lift from better than expected House Price data.
The US dollar slide knocked USDJPY from 113.80 to 112.95 with a dip in US Treasury yields exacerbating the move lower.
USDCAD retreated alongside the broad US dollar weakness, but with a lot less enthusiasm. The American Petroleum Institute’s weekly Crude Stock report showed inventories rising by 7.83 million barrels for the week ending November 2nd. WTI dropped from $63.25 yesterday morning to $61.70 at the end of the day. Those losses were erased overnight on the back of the weaker greenback, however concerns of persistently soft oil prices are weighing on the Canadian dollar. The Loonie may get a bit of support from this mornings release of the Ivey Purchasing Managers Index (forecast 50.9 vs previous 50.4)
Additional US dollar losses may be contained until after tomorrow’s FOMC meeting in case the statement is more hawkish than expected. There isn’t any important US economic data on tap, today.
USDCAD continues to bounce within a 1.2950-1.3160 range which has contained price action since October 25th. A break either side of this range would suggest a 0.0100 point move. The uptrend line from the beginning of October is intact while prices are above 1.2960, which guards the longer term uptrend from the end of January which comes into play at 1.2880. For today, USDCAD support is in the 1.3050-60 area and then 1.3010. Resistance is at 1.3110 and 1.3140.
Today’s Range 1.3050-1.3110