The theme of the US elections is coming to the fore and uncertainty surrounding the outcome, political and economic course of the new leader is putting pressure on the markets. This effect is amplified by Trump, who is again betting on anti-Chinese rhetoric in his campaign. The president this week voiced the idea of decoupling the US economy from China, threatening to block access to federal contracts for companies that outsource jobs to China.
We remember that revival of manufacturing sector in the United States and bringing back manufacturing jobs were the subject of Trump’s 2016 campaign. Considering that Trump, according to some polls, lags behind Biden, the “hot statements” that won the electorate last time, could come in handy. This is somewhat expected rhetoric, however it is unknown how far Trump will go in his threats and this is undoubtedly a risk factor.
As for events in the economic calendar, the focus was on the NFIB Business Optimism Index, which rose from 98.8 to 100.2 points in August, signaling continued expansion in the US.
The European currency waits for the ECB meeting, as we discussed yesterday, EURUSD longs remain relevant, as the Central Bank will find it difficult to stop the Euro rise with verbal interventions. To initiate some meaningful setback in EURUSD, the Central Bank will need to hint about “significant deterioration” in economic developments and forecasts (which will be also a hint of easing measures), but the macro data for July and August were quite positive.
The British currency, however, is showing its sensitivity to Brexit negotiations which resumed this week. Since the beginning of September, GBPUSD is down 3%, while USD index has been remaining broadly unchanged, indicating that weakness grows in GBP. GBP speculative positioning also indicates that there is room to increase short positions. Markets may still grossly underestimate the likelihood of no-deal scenario so retreats inside the downside movement in GBPUSD and especially GBPEUR may be viewed as a sell opportunity.
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