Finally, election day is here and ranges are expected to be broken. If you look at how this 2016 has been so far, I would say that ranges dominated and no one wanted to take a chance ahead of this Presidential election.
The EURUSD was consolidating for the whole summer, even though we had the Brexit vote in the second part of June. The highs in the 1.14 area and lows in the 1.08 hold for a maximum six hundred pips consolidation area that seems to be difficult to break.
The AUDUSD pair followed the same path, not being able to break the ranges, even though there is a new Governor that heads the Reserve Bank of Australia. Again, uncertainties about the U.S. election result governed trading.
The same can be said about other U.S. dollar pairs, like NZDUSUD, USDCAD, etc., and it is quite a funny thing how markets are positioning ahead of the vote. The thing is that the U.S. dollar is/should be bullish from a fundamental point of view in the sense that the Federal Reserve is going to deliver a rate hike at the next December meeting.
All other central bank jurisdictions from around the world are heading in the opposite direction, with the European Central Bank poised to ease further in December, the Reserve Bank of New Zealand to cut again this week, and with Reserve Bank of Australia already in an easy cycle. Yet, despite all these, markets are selling the U.S. dollar ahead of the U.S. vote.
Therefore, we’re heading to the polls with AUDUSD above 0.77, the NZDUSD above 0.73 and even EURUSD trading with a positive tone above 1.10. What does this mean?
One explanation is that the dollar is being sold on the back of a possible Trump win, as it will bring a lower currency all over the dashboard. On the other hand, there are voices calling for a risk-on move to follow due to a Clinton move. In such a risk-on move, the dollar is sold while EUR, AUD, and NZD are moving higher together with the U.S. equities.
All in all, the U.S. dollar seems to be at cross roads that will determine its value for the rest of the year. It is difficult to see how markets will react after we’ll know the future President of the United States, but positioning ahead of the vote shows a weaker U.S. dollar to follow.