US Election Week

Comments from Issing (a founder of the Euro currency concept) displayed his concern about fragility within the Eurozone – specifically structural issues within Italy Spain and Greece. He commented that the omission of an exit strategy from the single currency was serious flaw, and that the instigation of negative interest rates is an undesired step for the global economy. Such comments will pressure the €, but we may see an amplified effect on EUR/USD as USD strength returns. Poor German manufacturing orders this morning will not help the €.

Over the weekend, the FBI confirmed that no further action will be taken in the Clinton ‘email scandal’, and early polls suggest Mrs Clinton has gained support. Asian stocks have surged, Tokyo (1.5%) and Australia (1.5%) the big winners. S&P futures indicate a strong start is on course for the US also.

The comments and poll indicators strengthened the USD, with EUR/USD declining from 1.1140 to 1.1025 at the European open. The Mexican Peso surged 2% overnight. Friday’s employment data did not have much effect on the USD, with the headline under expectations, but the revision to last month countering that negativity. However, USD strength dominates this morning’s trading.

GBP had a decent week last week, with the Bank of England removing the suggestion that it will continue to cut rates – it is prepared to cut or raise, in reaction to the UK economy. However, GBP/USD is lower due to USD strength, trading at 1.2410 after hovering at 1.2500 on Friday.

New Zealand is expected by many to cut interest rates this week (Thursday), despite increasing inflation and a decent run of economic data. The key will be in the indicators of any future cuts. AUD may struggle in the face of USD buying a declining oil price, but the ‘risk on’ sentiment may bolster the currency.

This week will be dominated by the USD and the global reaction to the US Presidential race. Expect volatility as medium term views may be countered by short term swings. What a week…