KVB Market Analysis | 6 Nov: Dollar Strengthens Amid US Election Results, Pushing USD/JPY Higher

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

EUR/USD has fallen sharply and is now trading below 1.0900 as focus shifts to the U.S. presidential election. Polling in Georgia, a crucial swing state, has closed, with exit polls indicating a slight lead for Trump.

After a small gain on Monday, EUR/USD rose on Tuesday, reaching above 1.0930, marking new three-week highs and extending its positive momentum. The pair also surpassed the key 200-day Simple Moving Average near 1.0870, which signals a potential recovery.

Meanwhile, the U.S. Dollar is losing strength, causing the U.S. Dollar Index (DXY) to approach three-week lows in the mid-103.00s, amid rising U.S. and German bond yields. A 25-basis-point rate cut by the Federal Reserve is expected later this week, while the ECB recently lowered its rate to 3.25%. Market sentiment is leaning towards a Trump victory, which could further bolster the Dollar. Speculative net shorts in the euro have risen to two-week highs, surpassing 50K contracts.

Technical Analysis:

Further gains could push EUR/USD to a November high of 1.0934, followed by the preliminary 100-day and 55-day SMAs at 1.0940 and 1.1008, respectively. Next is the 2024 high of 1.1214 and the 2023 peak of 1.1275.

On the downside, initial support is around the October low of 1.0760, then at the round number of 1.0700 and the June low of 1.0666.

If EUR/USD breaks convincingly above the 200-day SMA, its outlook will improve. The four-hour chart suggests the rebound may continue, with resistance at 1.0925, followed by 1.0954 and 1.0996. Support levels include the 100-SMA and 55-SMA at 1.0846 and 1.0838, respectively, ahead of 1.0830. The relative strength index has risen above 64.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

GBP/USD gained traction on Tuesday, rising about two-thirds of a percent and pushing back above the 1.3000 level as markets brace for a potentially chaotic U.S. presidential election outcome.

The pair started the week with a bullish gap but retreated slightly on Monday before moving into positive territory on Tuesday morning as investor anxiety grew regarding the election.

The U.S. Dollar faced heavy selling pressure early Monday, especially after betting sites indicated Kamala Harris might win. However, late bearish action in Wall Street led to renewed demand for the Dollar as a safe haven.

On Tuesday, the ISM Services PMI report for October will be released, but investors are likely to focus more on exit polls and results from key swing states. According to RealClearPolling, Harris leads by two points in one poll, while Trump leads in another, with a tie in a third. In several swing states, Harris is closing the gap, but Trump still holds leads in Arizona and North Carolina.

Technical Analysis:

The Relative Strength Index on the 4-hour chart remains above 50, but GBP/USD has not yet converted the 100-day Simple Moving Average at 1.2980 into support, indicating buyer hesitation.

On the downside, the first support level is at 1.2940, followed by the round number at 1.2900. If GBP/USD can stabilize above 1.2980, the next resistance level could be 1.3000, followed by 1.3040.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis:

Early results suggest a possible Trump return, pushing USD/JPY close to 154.00 on Wednesday, as the U.S. Dollar rebounds and stocks rise. However, exit polls may shift market sentiment. TD Securities analysts note a Republican win could fuel a Dollar rally similar to past impacts on the Eurozone and China.

Despite this, the Dollar Index has dipped to 103.70 as investors anticipate the Fed's expected 25 bps rate cut to 4.50%-4.75% on Thursday. In Tokyo, the Bank of Japan holds at 0.25%, with Governor Ueda stressing data-driven policy decisions.

Technical Analysis:

From a technical viewpoint, if the USD/JPY pair maintains strength above the 153.00 level, it could rise to the 153.35-153.40 supply zone, potentially reaching the 153.85-153.90 area, which is a three-month high from last week. Continued buying could motivate bullish traders, especially since daily chart oscillators remain positive, allowing prices to move toward the 154.60-154.70 resistance before targeting the psychological level of 155.00.

Conversely, the 152.30 level appears to protect against immediate declines, followed by 152.00 and the Asian session low around 151.30-151.25. If prices fall below 151.00, the pair could drop to the 100-day Simple Moving Average support at around 150.25. A break below the 150.00 mark would shift the outlook toward bearish traders, leading to further losses.