News blight US Dollar strength – Market Overview – October 19

News blight US Dollar strength – Market Overview – October 19

Negotiations on the fiscal stimulus package in the United States continue amid a problematic and confusing political scenario. Still, there's hope for a satisfactory outcome.

The latest message from Trump, as contradictory as ever, is to increase the amount proposed by his party. The figures are getting closer to the $2.1 trillion approved in congress by the Democrats.

On the other hand, Nancy Pelosi has established a time limit of 48 hours to reach an agreement, introducing another element of pressure in this complicated negotiation process.

Even so, the markets seem to continue betting on a satisfactory outcome, as shown by the index futures that at the beginning of Monday's session advanced between 0.60% and 1%.

In any case, in the medium term, once the presidential elections are over, whether the winner is Trump or his rival Biden, investors expect measures to stimulate the economy that would boost the stock markets. If Trump is the winner, these stimuli will translate into new tax cuts, and if it is Biden with a direct stimulus package, that would far exceed 2 trillion Dollars.

For this reason, the volatility of the stock markets, ordinarily high in periods before presidential elections, is being more moderate this time, although without a clear direction now.

The modestly positive tone of the stock markets has caused the US Dollar to weaken against almost all currencies in a market risk-on scenario.

EUR/USD has failed to go below the support zone located between 1.1700-1.1714, remaining in the wide range of 1.1700-1.1800 in which it has been trading for a month.

The rebound in the pair has also been motivated by comments from a member of the European Central Bank's governing council, Holzman, that the central bank has no reason for further easing.

Only if the pandemic situation worsened would they consider this possibility. The current contagion situation is at the highest point after the first wave, and many European cities are in a state of reduced mobility, which is why it will hardly get worse from here.

So, no surprises are expected for the next ECB meeting, and therefore the Euro has rebounded from lows.

Something similar has happened with the cable. GBP/USD has rebounded from its support at 1.2900, in addition to a weaker Dollar, on the initiative of British officials to undo Johnson's bill in order not to comply with previous Brexit agreements.

The Brexit soap opera continues, and everything indicates that all the noise is nothing more than a negotiation strategy to finally, one way or another, reach a negotiated Brexit agreement.

When the pair is held in the 1.2900 area, only a loss of this level will pave the way for further falls to the 1.2700-1.2850 levels.

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