Ahead of the US election results, USD declines for a second consecutive week

As Americans prepare to cast their ballots on Tuesday, the price action of the US dollar is slowing down. In the event of a very close outcome, traders prepare for volatility because it may take days or weeks to choose the next US president. The US dollar index is holding onto significant technical support and is trading slightly below 104.00.

Following the US opening bell on Tuesday, the US dollar weakens slightly. As markets prepare for the US presidential election, the US Dollar Index (DXY), which measures the value of the US dollar relative to six major currencies, continues to trade below 104.00. The likelihood that the markets will be aware of whether former US President Donald Trump or Vice President Kamala Harris will declare victory by Wednesday appears to be low. Before voting has begun, at least 165 lawsuits have already been filed regarding electoral fraud and calls for recounts.

This could indicate that the 60th presidential election may experience more legal ambiguity than the last 46 days, which occurred after George W. Bush’s victory in 2000. Only a decisive win by a number of points may prevent a court dispute that would cause markets to become uneasy as the year came to a close.

The final October readings of the S&P Global and the Institute for Supply Management (ISM) Services Purchase Managers Index (PMI) are part of the US economic calendar. Based on preliminary readings, no significant changes are anticipated.

In the event that there is no obvious winner in the 60th US presidential election, keep an eye out for headline risk on Tuesday and Wednesday. The final reading for the October PMI has been made public by S&P Global. The Services PMI was slightly lower at 55 than the initial figure of 55.3. The final reading for the services sector for October has been released by ISM. The ISM Services PMI increased from 54.9 to 56. Around 18:00 GMT, the US Treasury is holding an auction of a 10-year note ahead of the first potential headlines surrounding the US presidential election.

With the Nasdaq up about 1% on the day as the US casts its votes, US stocks are feeling upbeat and are expected to rise. With a 98.0% chance, the CME FedWatch Tool supports a 25 basis point (bps) interest rate drop by the Federal Reserve (Fed) during its meeting on Thursday. More intriguing is the December 18 meeting, when there is an 81.7% possibility of a 50 basis point interest rate decrease from the current level, indicating that markets expect a rate cut both this week and in December.

The US 10-year benchmark rate is currently trading at 4.36%, having risen back to the closing level of 4.38% last Friday. It is technically the quiet before the storm for the US Dollar Index (DXY). The outcome of Wednesday’s US presidential election, when the world awakens, appears to be highly uncertain. The 200-day Simple Moving Average (SMA) is now holding the DXY at 103.84, but once the results are in, it should break past it within the following day.

Before thinking about a recovery toward 105.00 and above, the DXY must reclaim control of the two important levels it has given up. First up is the 200-day SMA at 103.84, which is followed by the large figure of 104.00. The second factor is the high of 104.63 on October 29.

The first line of defense on the downside is the critical level of 103.18 (the high on March 12) and the 100-day SMA at 103.12. In the event of swift and erratic movements this week, the 55-day SMA between 102.16 and 101.90 should be regarded as significant support. An journey below 101.00 would be feasible if that level breaks.