USD falls against key peers as US vote counting continues
The US dollar declined today as traders continued to react to the US election results. The most recent results show that Biden has won 253 votes while Donald Trump has won 214. That has raised the probability that Biden, the former vice president, will win the total vote. They also predict that Republicans will win the Senate, which will lead to gridlock in Washington for at least two years. As a result, it will be difficult for Biden to implement some of his most ambitious plans such as high spending on climate change and infrastructure. Later today, the dollar will react to the interest rate decision by the Federal Reserve.
In Europe, equities rallied as traders started to price-in a Biden presidency. In Germany, the DAX index rose by more than 1% while in the UK and France, the FTSE 100 and CAC 40 rose by 1% and 0.75%, respectively. The market believes that Biden will be better for the European economy because he will seek to maintain the long transatlantic relationship. Before the election, most traders believed that Trump would move to implement tariffs on European goods. Also, stocks are rising because gridlock in Washington is considered as a positive for European companies with American operations. This is because Biden will not get the votes he needs to raise interest rates.
The British pound declined against the euro as traders reacted to the relatively dovish interest rate decision by the Bank of England. In its decision today, the bank left rates unchanged at 0.10% as most analysts were expecting. It also increased the target of its quantitative easing policy to £875 billion, £50 billion more than estimates. Most importantly, the bank also committed to do more to support the economy as it goes through its worst downturn in years. It also said that it will not hike rates until inflation moves above 2%.
The EUR/USD pair rallied to a high of 1.1812 as traders reacted to the US election results. On the hourly chart, this price is above the 61.8% Fibonacci retracement level. It also moved above the important resistance level of 1.1770. The Relative Strength Index (RSI) has also moved above the overbought level. Therefore, the pair is expected to continue rising, with the next key level to watch being 1.1850. The alternate scenario is where the pair pares back gains and retests the support at 1.1770.
The EUR/GBP pair wavered today as traders reacted to the BOE decision. It is trading at 0.9035, which is below the upper side of the descending channel on the four-hour chart. The price is slightly above the 25-day and 15-day exponential moving averages. The Relative Strength Index (RSI) is also at the neutral level of 62. Therefore, the pair may continue falling as bears attempt to test the lower side of the channel.
The FTSE 100 rose to an intraday high of £5,900, which is the highest it has been since October 21. On the four-hour chart, the price has moved above the 25-day and 50-day moving averages. The Average True Range (ATR) and the signal and the main line of the MACD have been rising. The index is likely to continue rising as bulls aim for the next resistance level at £6,000.