Trump Is Dumping the Euro

The U.S. Dollar index (DXY) rose by 0.70% to 105.74 this week, while EURUSD fell by 0.86% to 1.06200, its lowest since April 22. The resounding victory of Republican Donald Trump was beyond expectations, even for his supporters. He won 312 electoral votes against Vice President Kamala Harris’s 226, marking a significant Democratic defeat, amplified by a Republican win in the Senate with 53 seats compared to the Democrats' 47, and a likely Republican victory in the House.

Some believe no previous U.S. President has held such consolidated power post-election. Trump's win surprised investors, who anticipated a closer race, leaning slightly in favour of the Republican nominee. The S&P 500 index surged above 6000 points, while Bitcoin (BTC) reached an all-time high at $90,000, and EURUSD dropped to 1.06200.

Large investors took profits on half of their positions against the Dollar at 1.09000-1.09380, withdrawing $12.3 million from the WisdomTree Bloomberg US Dollar Bullish Fund (USDU), indicating partial preparation for a bold rally in the Greenback. However, a remaining $13.3 million bet on Dollar weakening shows belief in a possible EURUSD rebound to targets at 1.10000-1.11000. It’s unclear where the Dollar rally could peak or what might trigger a reversal.

Technically, support at 1.06000-1.06500 appears solid for a potential reversal. The EURUSD is forming a falling wedge reversal pattern, suggesting the pair could see a sharp upward move, potentially reversing the Dollar’s current strength. This week’s data is unlikely to shift the Dollar’s direction significantly. October’s Consumer Price Index is expected to remain steady at 2.4% YoY and 0.2% MoM, while producer prices are forecast to rise to 2.3% YoY from 1.8%. October’s retail sales are predicted to slow to 0.3% MoM from 0.4% in September, which may not be enough to incite bold currency market movements. Oil prices showed volatility in October without a clear direction, reinforcing neutral expectations. Retail sales point to a gradual American economic slowdown.

The Federal Reserve (Fed) lowered interest rates by a quarter-point last week, expressing heightened concern over persistent inflation. Fed Chair Jerome Powell declined to comment on future policy actions following Trump’s return to the White House. It appears Powell miscalculated in betting against Trump and is now awaiting his next move. Trump is likely to push for further rate cuts to stimulate growth, and Powell may signal a dovish stance in his upcoming speech if he aligns with these recommendations.