US Dollar: Negative pressure is building – Scotiabank

USD holds range ahead of mid-term elections but charts suggest bearish pressures, economists at Scotiabank report.

Washington gridlock to be supportive for stocks

“While the results – especially those from the more contentious races or where the tallying of votes may take some time – risk being disruptive, markets appear to be betting on Washington gridlock (assuming the Republicans do take control of Congress) being supportive for stocks.”

“We note that seasonal trends typically run USD-negative through Q4. Some year-end USD offshore funding pressures are evident (via cross-currency basis) but tensions have eased somewhat over the past couple of weeks, suggesting that USD liquidity, while a little tighter amid rising US interest rates, is not especially problematic at this point. If risk appetite does pick up further momentum into year-end, the USD is liable to ease.” 

“Technically, we note incremental pressure on broader measure of the USD’s performance (DXY, Bloomberg Dollar Index) which supports the nearer-term outlook for more consolidation or outright softness.”