US Dollar gears up for a volatile week and weakens US presidential election polls favor Harris

By News Room Last updated Nov 4, 2024

The US Dollar retreats on Ipsos polls show Vice President Kamala Harris taking the lead as the US presidential election looms.
Traders set for a very volatile week, with the Fed meeting and the US presidential election as key drivers.
The US Dollar index slides below 104.00 and is looking for support.

The US Dollar (USD) eases on all fronts on Monday, opening weaker across the board in Asia, after a final poll publication from ABC News and Ipsos showed Vice President Kamala Harris leading by 49% against 46% for former President Donald Trump. Another element for more US Dollar weakness comes from The New York Times, which released data pointing that Harris is ahead in five of the seven swing states that will determine the outcome of the US presidential election.

The US economic calendar, meanwhile, needs to be considered as well with a very interesting element ahead this Monday: the Senior Loan Officer Opinion Survey (SLOOS) for the third quarter. The report will tell more on the conditions, supply and demand of loans extended to customers in the US. Loan distribution is a very good leading indicator to sketch how the economy will evolve in the coming weeks and months.

Daily digest market movers: Headline risk from all angles

On Sunday night, the final poll from ABC News and Ipsos showed Vice President Kamala Harris leading by a 49%-46% edge nationally. The New York Times/Siena survey showed Harris being ahead in five of the seven swing states.
Factory Orders for September are due at 15:00 GMT. Expectations are for orders to contract by 0.4% against the previous decline of 0.2%.
The Senior Loan Officer Opinion Survey (SLOOS) for the third quarter will be published at 19:00 GMT.
Chinese equities are very happy with the positive Harris polls and have closed in the green on Monday. European equities and US equity futures are still looking for direction.
The CME FedWatch Tool is backing a 25 basis point (bps) interest-rate cut on Thursday’s meeting with a 99.7% probability against a marginal 0.3% chance of rates remaining stable.
The US 10-year benchmark rate trades at 4.29%, lower than the 4.38% where it closed on Friday.

US Dollar Index Technical Analysis: Only for the experienced ones

The US Dollar Index (DXY) is set to enter a rough patch of volatility this week, so precautionary measures are needed when trading the US Dollar. Expect to see massive swings, mostly headline driven with even possibly unclear direction and rapid moves days after the election. Bigger levels – such as 102.11 on the downside and 105.53 on the upside – need to be considered as possible outcomes.

The DXY has given up two key levels on Monday and needs to regain control of those two levels first, before considering recovering toward 105.00 and higher. First up is the 200-day Simple Moving Average (SMA) at 103.84 together with the 104.00 big figure. The second element is the high of last week at 104.63.

On the downside, the 100-day SMA at 103.12, together with the pivotal level at 103.18 (high from March 12) are the first line of defence. In case of rapid and volatile moves this week, rather look for 101.90 together with the 55-day SMA at 102.11 to consider as a substantial support level. In case that level snaps, an excursion below 101.00 could be possible.

US Dollar Index: Daily Chart

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

Read the full article here