EURUSD struggles to hold gains as US Election and Fed meeting loom

Cautious mood prevails after a soft start to the week

Market sentiment is cautious on Tuesday after a quiet Monday, with traders eyeing key US data and events. US yields fell, pulling the US Dollar down, partly due to optimism over Kamala Harris' 2024 presidential bid. The Greenback also faces pressure ahead of the US ISM Services PMI, today’s elections, and the Federal Reserve's policy meeting. With this, the US Dollar Index (DXY) remains directionless after a slow start to the week, despite steady September factory orders and a positive rise in October’s Employment Trends data.

The upbeat China Caixin Services PMI and news that Beijing is considering raising the local government debt ceiling and Japan's return from a long weekend helped ease the risk-off mood. Additionally, comments from Chinese Premier Li Qiang, assuring that the government can drive strong economic growth, defended the optimists in Asia.

EURUSD recovery stalls

The US Dollar's latest retreat hasn't sparked much interest from EURUSD buyers, as traders look ahead to ECB President Christine Lagarde's speech and key US events. The pair rose on Monday, supported by a weaker US Dollar and strong EU/German PMIs, along with improved Eurozone Sentix Investor Confidence. ECB officials have recently downplayed the likelihood of large rate cuts, while positive growth data helped EURUSD recover last week.

GBPUSD, USDJPY lack clear directions

GBPUSD struggles to maintain its two-day recovery, weighed down by a three-month low in British Retail Consortium (BRC) sales and growing concerns over the UK's fiscal plans. This uncertainty is compounded by the Bank of England's preference for gradual rate cuts and mixed economic data.

USDJPY reverses its early-week pullback, bouncing off the 200-SMA support as Japanese traders return from a long weekend. The pair's rebound is also fueled by doubts about the Bank of Japan's ability to raise rates under a potential three-party government.

Antipodeans dwindle, commodities retreat

Antipodean currencies face pressure due to a cautious market outlook and doubts about China's ability to boost its economy with heavy stimulus, especially amid ongoing trade tensions with the US and Europe.

AUDUSD struggles to maintain its early-week rebound despite the Reserve Bank of Australia's (RBA) decision to hold rates, Governor Michelle Bullock’s defense of higher rates, and a three-month high in China’s Caixin Services PMI.

NZDUSD remains weak as Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr expressed concerns that the real economy is lagging behind interest rate cuts.

USDCAD stays under pressure despite a pullback in crude oil prices, Canada’s main export, and a dovish outlook from the Bank of Canada (BoC).

Crude oil struggles to gain momentum at a one-week high due to mixed market sentiment. Oil prices rose early in the week after OPEC+ extended its voluntary production cuts, and OPEC Secretary General Haitham Al Ghais issued an upbeat demand forecast. However, rising supply, especially from Libya, has challenged oil buyers recently.

Gold price reverses Monday’s gains as traders await key US data, elections, and the Federal Open Market Committee (FOMC) meeting. Despite a two-day losing streak being snapped, gold faces mild losses as India’s festive season ends and China’s optimism fades.

Cryptocurrencies rebound

Bitcoin (BTCUSD) halts a six-day downtrend, while Ethereum (ETHUSD) posts its first daily gain in six days, driven by heavy ETF inflows ahead of the US Presidential Elections. The crypto market is recently buoyed by expectations of a positive impact on the industry if Donald Trump wins.

Latest moves of key assets

• WTI Crude oil reverses the previous day’s gains by falling half a percent intraday to $71.30 by the press time.
• Gold stays defensive at around $2,740 at the latest, lacking upside momentum after snapping a two-day downtrend on Monday.
• The USD Index remains sidelined around 103.90 after posting the biggest daily loss in six weeks the previous day.
• Wall Street closed with minor losses but the Asia-Pacific shares dwindle. Further, European and British equities lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both rise more than 1.0% intraday to near $68,800 and $2,430 as we write.

All eyes on US elections, but PMI and Fed meeting will be key too

Looking ahead, the US general elections will take center stage, with Donald Trump and Kamala Harris neck-and-neck in the polls, despite Harris gaining a slight edge. This uncertainty will likely delay election results, keeping traders on edge and driving demand for safe-haven assets like Gold, the Swiss Franc (CHF), and the Japanese Yen (JPY). A Trump victory could be negative for the US Dollar in the short term, due to his aggressive policies, while a second term for the Democrats may help the Dollar recover, putting pressure on Gold, Crude, and major currencies like the Euro (EUR) and British Pound (GBP).

In addition to the election drama, US ISM Services PMI data on Tuesday and the Fed's monetary policy announcement on Thursday will be closely watched. With the recent weakness in US jobs data and expectations of a Fed rate cut, weaker PMI numbers could further weaken the Dollar, especially if the Republicans take control of the economy amidst higher rates and ongoing challenges.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!