Dollar Rebounds As Odds For Clinton Victory Rise

• Rates: Risk sentiment improves, but stay side-lined into elections
  
  
  
  Risk sentiment turned positive in Asia this morning as the FBI said that won’t take action against US presidential candidate Clinton in the e-mail probe. US Treasuries took a hit while stocks and the dollar surged. Today’s eco calendar is empty. Ahead of tomorrow’s vote, we stay side-lined.



• Currencies: Dollar rebounds as odds for Clinton victory rise
  
  
  
  Overnight, the dollar profits from a broad-based risk-on sentiment as the FBI cleared presidential candidate Clinton in the e-mail probe. The dollar will probably stay away from the recent lows if no unexpected news disturbs the election campaign. However, we don’t expect a sustained USD rally before the US election is out of the way.

• US equities were well-inspired during much of Friday’s session, but gave back the gains to close with small losses, as election fears trumped solid payrolls.



• The FBI said it would take no action against Mrs Clinton regarding its probe into emails of the presidential candidate. Asian equities and assets election-sensitive assets (Peso, dollar, oil) bounced higher while US Treasuries lost ground.



• Moody’s was the last of the 3 big rating agencies to upgrade Hungary’s rating back to investment grade (Baa3; stable outlook). Moody’s singled out the primary surpluses of the past 4 years, a commitment to reducing debt.



• Fitch confirmed the Dutch AAA rating with stable outlook and Latvia’s A- rating with stable outlook. S&P revised the outlook of Turkish BB rating to stable from negative, as the country takes measures to reduce external vulnerabilities.



• The People’s Bank of China has weakened the renminbi’s trading band against the dollar, effectively undoing last week’s stretch of strengthening.



• British Prime Minister Theresa May said on Sunday she would deliver a full exit from the European Union, hitting back at critics of her Brexit strategy who have threatened to try to block the process in parliament.



• The majority of Bank of Japan policymakers believe it could take time for inflation expectations to firm, underscoring lingering doubts on how effective the BOJ’s new policy framework would be in achieving its 2% price target.



• ECB Constancio said euro zone inflation will accelerate quickly in coming months and a recent string of encouraging economic data may have reduced risks to growth. Inflation may be around 1.3% in March if things go normally.

Dollar rebounds as Clition stays in pole-position

On Friday the dollar basically held a sideways trading pattern against the euro and the yen. EUR/USD evolved in a tight sideways range around 1.11. Even a solid October US payrolls report, which at last showed signs of wage growth, was unable to give direction. US election uncertainty paralysed investors. The rate differential slightly moved in favour of the dollar, but was flatly ignored. EUR/USD even closed the session near the intraday highs at 1.1141 (from 1.1105). USD/JPY finished an uneventful session at 103.12 (from 102.98).

News from the US election campaign remains the focus for global trading. The FBI cleared Hillary Clinton from any criminal charges in the E-mail probe. This has triggered a global risk-on reversal even as the gains are mixed across the region. Japanese equities outperform. USD/JPY rebounded north of 104 on global USD strength. Even so, Japanese vice minister of international affairs who is responsible for currency policy indicated that Japan is watching markets closely. FX intervention isn’t ruled out after the US presidential election in case of excessive currency moves. Chinese equities underperform. The yuan declines on broad-based USD strength with USD/CNY trading in the 6.7750 area. Political tensions between mainland China and Hong Kong might also be a factor of regional uncertainty. EUR/USD shows some wild swings overnight on the Clinton headlines. The pair trades currently in the 1.1070 area.

Today, the US eco calendar only contains the labour market condition index and consumer credit, none of which is a market mover. The European calendar is also little interesting with the September retail sales and the November Sentix Investor confidence. Based on some national data, retail sales should be weak (-0.5% M/M), but we don’t expect much market impact. ECB Constancio speaks on a macro prudential hearing panel, while ECB Lautenschlaeger (hawk) speaks in Munich. However, the focus of global trading will remain on the US presidential election with results expected late on Tuesday/Wednesday.

The dollar rebounded across the board as the FBI cleared Clinton in the e-mail probe. There might be some follow-through price action on his process today. However, investors will probably remain cautious as unexpected developments in the election campaign/outcome are still possible. In this context, we expect the dollar to stay away from the recent lows, but further sustained gains are not that evident. The dollar probably needs certainty on the election result to resume its rally supported by cemented Fed-rate hike expectations

From a technical point of view, EUR/USD dropped below 1.0952/13 support, which was USD positive, but the re-break followed soon, when Clinton’s campaign ran into trouble. The previous range bottom (1.1123) was under test at the end of last week, but a sustained break didn’t occur. Other resistances are located in the 1.12 area. USD/JPY’s break above 104.32/87 resistance is undone. Until last week, the rise in core yields dominated USD/JPY and forced a (temporary) break higher. The return of US political uncertainty pushed USD/JPY back in the previous range. We stay side-lined for now.

EUR/USD: 1.1123 extensively tested, but no sustained break

EUR/GBP

Sterling rally to slow?

On Friday, sterling gained gradually further ground versus euro and dollar, following some volatile Asian trading The price action was probably follow through action on the trifecta of Thursday’s good news in the form of the High Court ruling, a decision by the Bank of England to upgrade its growth and inflation forecasts and stronger than expected growth in the services sector. The intraday rally of sterling slowed going into the weekend. EUR/GBP finished the session at 0.8900 (from 0.8912). Cable closed the session at 1.2517 (from 1.2461).

During the weekend, UK PM May repeated that she is still convinced to Change the ruling of the High Court on the role Parliament in the Brexit process. However, market moves on the FBI headlines are also the most important driver for GBP-trading this morning. Cable declines off Friday’s highs, losing more than one big figure on USD strength. EUR/GBP is little changed in the 0.89 area. Toda, the UK eco calendar is thin with only the Halifax House prices on the agenda. So global factors will probably determine sterling trading.

Despite the sterling gains at the end of last week, the issue of Brexit remains a big uncertainty and thus a stumbling block for a sustained improvement of sterling. Therefore, we aren’t convinced that a multi-day sterling rally is in store. Anyway, the EUR/GBP support area (0.8880/0.8808) should first be broken before contemplating a change of our sterling skeptical view shortterm. Medium term, EUR/GBP 0.8725 remains the line in the sand.

EUR/GBP: sterling rally to slow?

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Dollar Rebounds As Odds For Clinton Victory Rise