EUR/USD shows modest gains above 1.0850, all eyes on US presidential election results | 05 November 2024

EURUSD:

The EUR/USD exchange rate is trading at a slight premium near 1.0880 in the early Asian session on Tuesday. The US dollar (USD) is experiencing a decline as market participants await the results of the US presidential election and a potential interest rate cut by the Federal Reserve (Fed), which is providing some support to the major pair.

The opinion polls show that Democratic candidate Kamala Harris and Republican Donald Trump are virtually tied, with the results scheduled for announcement a few days after the polls close. Mr. Kenneth Brue, head of corporate FX and rates research at Société Générale, notes that the polls suggest Ms. Harris may be ahead in several states, which is causing some profit taking in the Trump trade.

Furthermore, the prospect of a rate cut by the Federal Reserve at its November meeting is contributing to the downward pressure on the dollar. The US central bank is anticipated to implement a 25-basis point rate cut on Thursday, in contrast to the 50-basis point reduction it implemented at its previous meeting. CME's FedWatch tool indicates that financial markets currently anticipate a 98% chance of a quarter-point rate cut and a 80% chance of a similar change in December.

In Europe, the euro is gaining strength as recent Eurozone economic data has lowered expectations that the European Central Bank (ECB) will cut interest rates in December. Money markets are now pricing in a 34 bp rate cut, down from 42 bp the day before, indicating a reduced chance of a deeper 0.5% rate cut. At the October meeting, the central bank reaffirmed its commitment to a 'data-driven and meeting-by-meeting' approach to future policy decisions. However, the Eurozone inflation report for November may provide some insight into the ECB's interest rate outlook.

Trading recommendation: We follow the level of 1.0900, when fixing above it we consider Buy positions, when rebounding we consider Sell positions.

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