With volatility on the rise as we head into the US election on November 5, the USD has strengthened significantly against the other major currencies in October. Going into November, the election will take centre stage as investors will assess who wins and what it means for the market. Here’s what to watch:
- The US election is on November 5. As mentioned, this is the key focus for investors this month, with polls showing that the outcome is still in the balance.
- Fed and BoE rate decisions on November 7: A couple of days after the election, traders must tread carefully with both the Bank of England and Federal Reserve set to announce their latest rate decisions.
- Earnings: Given many of the Magnificent 7 stocks are set to report earnings late in October, any shocks could result in volatility that spills over into early November.
US Dollar (USD)
The US election looms large, with polls still suggesting the race is extremely tight despite betting markets predicting a Trump victory. In October, the US Dollar performed well. As volatility picks up in the early part of November, given the key news releases, we could see investors move into safe haven currencies such as the US dollar. Using technical analysis, we can see the USD, against most of the other major currencies, has formed a strong bullish trend. Given the expected rise in volatility, we would caution against jumping straight into positions in early November.
Key Levels:
- EURUSD: Higher – 1.0950, Lower – 1.0725
- GBPUSD: Higher – 1.3200, Lower – 1.2810
- USDJPY: Higher – 157.60, Lower – 149.30
Euro (EUR)
The euro’s performance in October was mixed against the other major currencies. The ECB cut rates in October, and some reports say the central bank is starting to debate whether rates have to go below neutral. This would surely result in weakness for the currency based on rate differentials. However, the stability of the currency heading into the volatility in the next week or two may provide it with some resilience. Looking at the chart, despite the drop in October, the EURUSD has actually been ranging for some time, currently close to the bottom of the range, which may suggest a potential bounce from current levels. Even so, the upcoming news releases could, however, have the potential to set the pair on a new path starting in September.
Key Levels:
- EURUSD: Higher – 1.0950, Lower – 1.0725
- EURGBP: Higher – 0.8400, Lower – 0.8250
British Pound (GBP)
Not long before writing this article, the UK government detailed its autumn budget. Initially, the GBP rose sharply against the US dollar, but the rise was seemingly short-lived. Like other currencies, the GBP pulled back against the USD in October, and in the near term, we feel it will continue, especially until we see what happens in the US election and the rate cut decisions from the BoE and Federal Reserve. When assessing solely price, we can see that the GBP has been in somewhat of a solid uptrend against the USD since around October 2023. The latest pullback is still in line with the trend, but we will have to wait and see before deciding whether it can continue over the next month.
Key Levels:
- EURGBP: Higher – 0.8400, Lower – 0.8250
- GBPUSD: Higher – 1.3200, Lower – 1.2810
Japanese Yen (JPY)
Japan recently held elections, and the result did not go as expected, with Prime Minister Shigeru Ishiba’s ruling Liberal Democratic Party (LDP) and longtime partner Komeito failing to retain a majority in lower house elections. This has raised concerns about the policy outlook. Following the results, the USD gained against the yen. However, with the US election set to come, there is the potential for sharp swings in the market over the coming weeks, although traders may opt to go with the seemingly stronger safe haven of the USD.
Key Levels:
- USDJPY: Higher – 157.60, Lower – 149.30
- EURJPY: Higher – 170.90, Lower – 163.60
Given what’s expected over the coming weeks, the most important aspect heading into November will be risk management, as the increase in volatility could significantly impact trading strategies.
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