Daily Key points: Race for US midterm elections seems tight

The USD continued to weaken on Tuesday against its counterparts for a third consecutive day, as investors’ attention turns to the results of the US midterm elections. As for the US House of Representatives, for the time being Republicans seem to be leading the race, while a majority of more than 218 seats is required for any of the two parties to control the House. As for the Senate we note that the race for the majority of 50 plus seats seems to be tight with some analysts comparing it to a toss of a coin. Overall, we expect to see some wins for Republicans, yet the possibility of a cataclysmic red wave seems to be fading away. Should the Republicans actually take control over either house of Congress they could place a veto in the wide expansionary fiscal plans of US President Joe Biden, which in turn could deepen a possible recession in the US economy. On the other hand, the possibility of a divided government, producing a political gridlock, may leave the Fed alone in navigating the US economy, in which case more aggressive rate hikes may strengthen the USD while an easing of the bank’s hawkishness could weaken it. On the contrary , gold’s price was on the rise yesterday and continued to advance higher today, benefitting from the weakness of the USD while US yields seem to be tipping lower polishing the shiny metal even further. Also US stockmarkets were on the rise, with all three main equities indexes, the Dow Jones, Nasdaq and S&P 500 being in the greens, with market sentiment being improved. It should be noted that Disney’s earnings report for Q3 that was released yesterday in the after-market hours, was disappointing as both the Earnings per Share figure and the revenue figure missed the market’s expectations and came out lower. Yet the issue seems to be deeper for Disney as analysts highlight that the company’s streaming business, despite adding more subscribers is losing money and we expect the earnings report for Q3 to weigh on the company’s share price. Overall we expect in the FX market the greenback to maintain the initiative over other currencies as attention turns towards the release of the US CPI rates for October on Thursday, which is the next big test for the markets. Should the US CPI rates accelerate further, we may see the USD regaining some ground, while US stockmarkets could weaken as such a development could intensify the hawkishness of the Fed and vice versa.

USD/JPY dropped further yesterday testing the 145.15 (S1) support line. We tend to maintain a bearish outlook for the pair as long as the downward trendline incepted since the 4 of November continues to guide the pair’s price action. Also please note that the RSI indicator is pretty low, also implying a bearish sentiment of the market. Should the bears actually maintain control over the pair, we may see USD/JPY breaking the 145.15 (S1) support line, and aim for the 143.50 (S2) support level. On the flip side, should the bulls take over, we would expect the price action to initially break the prementioned downward trendline, in a sign of a trend reversal, break the 147.00 (R1) resistance line and aim for the 148.35 (R2) level.

EUR/USD rose yesterday yet hit a ceiling at the 1.0095 (R1) resistance line. We tend to maintain a bullish outlook for the pair and the current consolidation may prove temporary given that the RSI indicator still is at very high levels. Should the buying interest be renewed we may see EUR/USD breaking the 1.0095 (R1) resistance line and aim for the 1.0195 (R2) level. Should a sellers take over the pair’s direction, we may see EUR/USD breaking the upward trendline which is currently testing, break the parity level (S1) which acts as a support line now and aim for the 0.9900 (S2) support barrier.

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Today in the European session we note that NY Fed President Williams, RBA Deputy Governor Bullock, BoE policymaker Haskel, which are scheduled to speak, while in the American session we get the weekly EIA crude oil inventories figure and Richmond Fed President Barkin, and BoE Deputy Governor Cunliffe are scheduled to make statements.