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“Tuesday’s mid-term elections will have a major say over where the dollar trades for the rest of the year,” argue ING analysts.

Key quotes

“Long dollar/short EM positioning is vulnerable going into this election risk given that in the background we now have the (albeit small) prospect of Presidents Trump and Xi striking a trade deal later in November. But the dollar hasn’t rallied this year purely on trade friction.”

“The fiscal/monetary mix has had a big say in the dollar, and that’s why mid-terms are important. Pollsters expect the House to go to the Democrats, which reduce chances of fresh stimulus, raise chances of debt ceiling grid-lock and probably be slightly dollar negative. A Red Wave of a Republican hold in Congress is unexpected and would probably be dollar bullish. The coming week will also see a Federal Reserve meeting, where growth is strong, inflation is at/or above target, and further gradual hikes are deemed necessary.”

“Europe is trying to understand what went wrong in 3Q18. Growth disappointed at 0.2% quarter on quarter and confidence is low that the poor result was a one-off. German industrial production and retail sales for September may shed some light here. We’ll also see more PMI data across the region, but the recent release of flat Italian GDP in 3Q18 and another manufacturing PMI below 50 creates a fertile ground for further budgetary conflict between Rome and Brussels. If there is a EUR/USD short squeeze on the mid-terms, we think it could stall before the 1.1560/1620 resistance area.”