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  • Forex today was mixed with the greenback directionless  awaiting the Congressional  US midterm election results.
  • Dollar bulls looking for Republicans to hold congress  but concerned of the consensus that the Democrats will win the House – Its a coin toss either way and who trusts polling these days anyway?  
  • Kiwi gets a last-minute boost from strong jobs data.

The greenback was largely governed by US yields.  The US 10yr treasury yield climbed from 3.19% to 3.22%, while the 2yr yield rose from 2.90% to 2.93% – a fresh high. The Fed fund futures yields repriced the chance of another rate hike in December at 80% (from 75%) which keeps the DXY underpinned.  

Meanwhile, the markets were looking ahead to the US election results, and Wall Street managed to maintain form, making for a slightly risk-on feel to the US session.  Major equity indexes ended the day with modest gains as all 11 major sectors closed in the positive territory.  The Dow Jones Industrial Average rose 175.41 points, or 0.69%, to 25,637.11, the S&P 500 added 17.19 points, or 0.63%, to 2,755.5, and the Nasdaq Composite gained 47.11 points, or 0.64%, to 7,375.96.

US elections showdown

As far as the polls go, according to the reports, 35 million early votes were cast in today’s election compared to 20 million in 2004, and a record voter turnout is expected, which makes it difficult for experts to predict the outcome.  All 435 seats in the House and 35 of 100 Senate seats face re-election.

“Weather could affect the results, with a strong storm hitting the eastern US, but voter turnout is nonetheless reported to be high, which may work in the Democrats favour. Our base case  is a Republican Senate and Democrat House. This would imply less fiscal stimulus and weaker growth, but probably more trade angst,”

analysts at ANZ Bank suggested.  

“Some investors may fear policy gridlock from a divided Congress, but others may hope for compromise on issues such as infrastructure, or at least government funding and raising the debt ceiling. US elections often produce surprises so global markets and AUD could be whippy as the results come in, especially as it could take some hours for the final picture to become clear,”

analysts at Westpac argued.  

Currency action

While remaining vulnerable to  Italian budget-related developments, EUR/USD has been edging higher towards the 21-D SMA up at 1.1458, squeezing some of the nin committed bears between 1.14 the figure 1st Nov pin bar high at 1.1456. The euro was supported by the EZ services PMI, ( service PMI 53.7 in Oct, 53.3 forecasted. Composite 53.1 vs 52.7 forecasted), which tightened the DE-US spread. However, the euro dropped in the NY session when the US 2yrs hit a fresh high to 1.1405 before a light pick-up again into the close with EUR/USD ending at 1.1428. GBP/USD was boosted yet again on sentiment for a Brexit deal being on the cards and possibly put to UK parliament as soon as the middle of this month. Cable  was ending the NY session at 1.3081 and was firm into the NY close having traded with a North American range of between 1.3095-1.3064. PM May says a deal is 95% done. However, Ireland is still by far the biggest problem and the EU is keen that the UK doesn’t somehow depart wildly from the rest of the continent in ways that give it enormous competitive advantages. Regardless of the uncertainties, the pound is paring back the no deal speculation losses and the cross continues to bleed as markets also look to price in a necessary rate hike from the BoE. EUR/GBP fell 0.22% to 0.8722 with the range of between 0.8754 – 0.8718. USD/JPY was perky from the get-go and has now made g a bullish close above 61.8% of Oct’s drop at 113.34. US stocks continue to recover, even in the face of the US elections and uncertainties surrounding global growth and world trade. Until we see another correction in global equities, to the downside, the yen is unlikely to find a bid and the dollar can remain firm on interest rate differentials. However, with the elections likely see a divided Congress: with Democrats controlling the House, the dollar may wobble and give the bears some ground back. Alternatively, should such an outcome already be priced in, the dollar could find further demand and should the market figure that such a result would not be so disruptive to Trump’s administration’s fiscal spending domestic plans, we are going to be looking at the recent 114.55 double top highs again. AUD/USD got a late boost from a tired dollar in early Asia around the same time that the Kiwi rallied hard on the back of impressive unemployment data. AUD/USD traveled from 0.7214 to score a high of 0.7250. However, commodities are not so healthy and the CRB index is underwater on the 191 handle, that’s down from the 201 handle seen at the start of Oct business. AUD/USD closed NY at 0.7247. NZD/USD reached a high of 0.6743.

Key notes from US/ early Asia session:

  • Wall Street ends higher as huge voter turnout makes it tough to predict exit polls
  • NZ: Unemployment rate drops to 3.9% in Q3 vs 4.5% expected

Key events ahead:  

“The results of the US midterm elections will be released during Sydney trade. Polls close at various times according to the state, with the earliest closes the 7pm east coast states including Florida and South Carolina. So we should start seeing exit polls from about 11am Sydney/8am Sing/HK. All 435 seats in the House and 35 of 100 Senate seats face re-election, along with many state governorships,” analysts at Westpac explained.