The first part of the week saw markets begin to de-risk ahead of the US election. Although Biden is ahead in the polls the chance of a contested US election remains. Initially the de-risking was relatively well contained, but shutdowns planned for Germany and France on rising COVID-19 cases hurt risk assets on Wednesday. Volatility is expected to increase as we head into the US elections next week, so it may be prudent to exit positions as we head into Friday’s close.

Key events from the past week

  • CAD: Interest rate decision, October 28. The Bank of Canada kept rates unchanged as expected and does not see rates rising until 2023. Their QE purchases are shifting towards longer dated bonds. There was little by way of surprise here, but the USDCAD remained mildly supported on the release.
  • EUR: Interest rate decision, October 29. The ECB kept interest rates unchanged and did not expand the rate of bond purchases. Christine Lagarde maintained an ‘on-hold’ stance while recognising the recent challenges for the eurozone and that risks were clearly ‘tilted to the downside’.
  • COVID-19: Shutdowns in Europe, October 21. Risk sentiment was badly hit on Wednesday as France announced a month shut down and reports circulated that Germany was preparing for a 2 week lockdown. This news hurt risk sentiment and risk assets slid quickly on the news. Register for our Wednesday workshop to find out how you can develop a trading plan for the week ahead.

Key events for the coming week

  • USD: US elections, November 03. A Biden victory is expected to weaken the USD medium term and a Trump victory is anticipated to strengthen the USD as protectionist policies are continued against China and Europe for a 2nd term.
  • AUD: Interest rate decision, November 03. The RBA is expected to cut rates next week with OiS futures markets seeing an 82% chance of a rate cut. The cut has been expected by the markets for some time now, so the biggest surprise will be no change from the RBA which would support AUD in the near term
  • USD: Election risks and COVID-19 cases rising, November 02-06. Watch Out! Volatility should rise strongly next week as US election risks rise and COVID-19 cases continue to increase. If more national shutdowns happen on rising infections then risk assets will likely find more pressure. Register for our Wednesday workshop to find out how you can develop a trading plan for the week ahead.

HYCM Lab is a financial analysis source that provides regular insights on how global news affects the markets including forex, commodities, stocks, indices, and cryptocurrencies*. Run by the HYCM team, it equips traders with everything needed to make informed trading decisions.