Dashed stimulus hopes boosts EURAUD
Tony Sycamore October 22, 2020 2:35 PM
Our scepticism that a pre-election stimulus deal would be struck appears to be have been well-founded, following the tweet below this morning from President Donal Trump that conveyed a similar sentiment.
“Just don’t see any way Nancy Pelosi and Cryin’ Chuck Schumer will be willing to do what is right for our great American workers, or our wonderful USA itself, on Stimulus. Their primary focus is BAILING OUT poorly run (and high crime) Democrat cities and states....”
Judging by the poor price action in U.S. and European equity indices overnight, they too were coming around to a similar conclusion.
Evidence is mounting that the economic recovery has begun to slow in the U.S. and Europe, prompting policymakers including Federal Reserve Chairman Jerome Powell to warn that the economic recovery was in peril if the government fails to provide further support.
In terms of how soon a new fiscal package can now be agreed it will depend on the outcome of the U.S. election.
A “Blue Wave” that sees Joe Biden become President and gives the Democrats a majority in both chambers of Congress would result in a front-loaded fiscal package being approved soon after the election.
A Biden Presidency and split Congress would likely result in minor delays to a new stimulus package. A contested outcome would be the worst possible outcome, causing new stimulus delays of months.
To hedge some of this uncertainty, I favour EURAUD a currency pair that tends to rally during periods of risk aversion and vice versa.
As can be viewed on the chart below, EURAUD spent over four months range trading between 1.6000ish and 1.6600, before breaking higher earlier this week.
While the lack of upside follow-through yesterday was disappointing it gives others an opportunity to review this trade idea and is in keeping with the choppy type of trading expected in the lead up to the U.S. election.
Providing EURAUD remains above support (daily closing basis), formerly resistance 1.6600/1.6580, a positive bias will remain in place, looking for a rally towards 1.7000 on dashed near term stimulus hopes and pre-election nerves.
Source Tradingview. The figures stated areas of the 22nd of October 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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