EUR/USD: Fate hangs on the US elections – Natixis

Nordine Naam, Research Analyst at Natixis, suggests that with the dollar plunging in reaction to Donald Trump’s surge in the opinion polls, the EUR/USD appreciated to 1.12, probably as a result of a reduction in short euro positions and long dollar positions.

Key Quotes

“A victory of Donald Trump would drive up the US dollar, as there would be a spike in risk aversion, as a result of which the EUR/USD would be likely to correct towards 1.08. A victory of Hillary Clinton would also send the greenback higher on heightened expectations of a hike in the Fed Funds rate and since the Trump risk would subside.

Furthermore, in the next few weeks, the euro will once again be penalised by concerns of EU construction, what with the Italian referendum on 4 December.

Finally, the euro will also be penalised by the likely announcement of a QE extension by the European Central Bank in December. In the wake of the US elections, we see the EUR/USD pulling back towards 1.09 next week, then towards 1.07 at the end of the year.”