Dollar Plunges On US Midterms 'Blue Tsunami'
Dollar Down Midweek
The US Dollar is down firmly today after the US midterms delivered a stunning victory for the Democrats who took both houses. For once it seems opinion polls were on the money, having signalled such an outcome was expected, but we’ve seen a visceral market reaction today, nonetheless. DXY is down around .5% as of writing while stock futures have bounced almost 2% on the day from initial lows back up into the green. The reaction we’re seeing today is interesting given that many players were warning of a downturn in stocks if the so-called ‘Blue Tsunami’ occurred on the basis that the Democrats will create heavier opposition to the advancement of AI, particularly the aggressive building of data centres around the US.
US Jobs Data Next
For the Dollar, the current downside we’re seeing was largely expected in the event of the Democrats taking both houses. On the one hand, heavier roadblocks for the AI world could spill into lower growth, potentially even weaker inflation. Secondly, the prospect of fiscal gridlock and a prolonged US govt shutdown now look very real. While traders digest the outcome of the elections, USD has room to drift lower. However, focus will soon turn to Friday’s headline NFP release which could help fuel a revival rally in USD if we see any upside surprise in the data and a spike in Fed tightening expectations.
Technical Views
DXY
The index is now testing the cradle of support formed at the bull channel lows and the retest of the broken bear trend line from summer highs. If we break below this zone, focus will turn to the key 100 level as the next big support zone to watch. Topside, bulls need to get back above 101.91 to alleviate near-term bearish risks.
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