Despite the falls in the USD to start the week the recent USD strength may continue this week for at least three reasons. Firstly, the quarter-end rebalancing flows are expected to boost the USD. Secondly, there is a conference on Wednesday titled ‘the ECB and its watchers’ and this may work as a catalyst for USD strength. Thirdly, there are risks around the US presidential debate today.

Tuesday’s US presidential debate

Biden is ahead in the national polls at the moment. However, betting odds (a good proxy for markets thinking) are showing a tightening race. FiveThirtyEight are currently showing a Biden win at 77%. If the debate goes well for Biden then the centre of gravity could shift to solid expectations of a Democrat win and a major stimulus package coming in the New Year. This would likely move yields higher and support the USD. However, if the debate causes Biden to slip back in the polls this could heighten investor concern and encourage volatility.

Finally, virus cases are continuing to rise in Europe. However, deaths are not spiking higher in the same way that they were in the first wave.

So, the European PMI data out this week will be important. If we see another drop in PMI’s then we can expect EUR selling. This euro weakness will further support the dollar higher.