Markets Await the U.S. Elections Amid China’s Stimulus Actions (11.04.2024)

The dollar index retreated on Monday as investors braced for the U.S. presidential election and the Federal Reserve's interest rate decision. 

The yen strengthened due to dollar weakness and the BOJ's hint at a future rate hike. Gold remained stable amid U.S. political uncertainty and safe-haven demand. The British pound stabilized after a recent decline, while silver prices rose on China's potential stimulus measures and a weaker dollar.

Dollar Retreats Ahead of Fed and Election

The dollar index fell below 104 on Monday, reversing gains from the prior session as investors braced for the upcoming U.S. presidential election and a key Federal Reserve policy announcement. Recent market dynamics have pushed the dollar and Treasury yields higher amid speculation that Trump might regain the presidency this month. His proposed policies on immigration, tax cuts, and tariffs raised concerns about potential inflation. However, uncertainty surrounding the election results led traders to temper those expectations this morning. On the monetary policy side, the Fed is largely anticipated to lower interest rates by a modest 25 basis points this week, following a larger half-percentage point cut in September. Markets are also factoring in an additional quarter-point reduction in December.

In the EUR/USD pair, the initial resistance level is at 1.0910, followed by 1.0940 and 1.0960 as subsequent resistance points. On the downside, the first support level is 1.0870, which aligns with the 200-day moving average. If this level is breached, the next support levels to watch will be 1.0830 and 1.0800.

Yen Recovers, BOJ Hints at Future Rate Hike

On Monday, the Japanese yen strengthened past 152 per dollar, recovering from previous losses primarily due to dollar weakness amid rising uncertainty over the U.S. presidential election outcome. Traders are also preparing for the Federal Reserve's upcoming decision, which is expected to involve a cautious 25 basis point rate cut. Meanwhile, the Bank of Japan maintained its policy rate at 0.25% last week as it navigates a political upheaval in Japan that has created uncertainty around the country’s fiscal and monetary policies. In a post-meeting briefing, BOJ Governor Kazuo Ueda noted that economic risks in the U.S. seem to be decreasing, hinting that conditions might be favorable for a future rate hike. Markets speculate that the BOJ could increase rates to 0.5% as early as January, though fluctuations in the currency and inflation data will play crucial roles in this decision.

In the USD/JPY pair, the first support level is at 151.50, which coincides with the 200-day moving average. If this level is broken, the next support levels to monitor are 150.60 and 150.00. On the upside, resistance levels are at 153.30, 154.50, and 156.60, respectively.

Gold Maintains Stability Amid U.S. Election Uncertainty

Gold continues stable movement at $2,740 per ounce on Monday after closing the previous week nearly stable as well. Political uncertainty in the U.S., potential inflation from a possible Trump presidency, and conflicts in the Middle East and Ukraine continue to drive investors to gold as a safe-haven asset. Betting site polls showed a switch from Trump to Harris over the weekend nearly declining from 66% to 54% further supporting the yellow metal with providing more uncertainty.

On the downside, the first support level for gold is at $2,735, followed by $2,714 and $2,685. On the upside, $2,758 serves as a key resistance level, with $2,770 and $2,790 as the next levels to monitor if this resistance is surpassed.

Pound Stabilizes Ahead of BOE Meeting

The British pound had dropped to $1.2845, its lowest level since mid-August, amid concerns over the Labour Party government's first budget. However, a decline in the Dollar Index has helped the pound rise back toward the $1.30 level. Additionally, an interest rate decision meeting by the Bank of England is approaching. Markets are currently pricing in a 25-basis-point rate cut, along with an expected cumulative 75-basis-point reduction by the end of 2025.

On the downside, key support levels for the GBP/USD pair are at 1.2945, 1.2910, and 1.2840. On the upside, resistance levels to watch are at 1.3000, 1.3045, and 1.3080.

Silver Prices Rise on China Stimulus Hopes

Silver prices climbed above $32.60 per ounce on Monday, recovering from a two-week low as the dollar weakened amid rising uncertainty over the U.S. presidential election and the Federal Reserve's impending interest rate decision. A weaker dollar typically boosts demand for dollar-denominated commodities like silver. Additionally, optimism surrounding potential stimulus measures from China supported market sentiment, coinciding with the National People’s Congress beginning its five-day meeting. Chinese officials are expected to provide more details on debt and fiscal initiatives aimed at stimulating growth, with reports suggesting a possible stimulus package exceeding 10 trillion yuan. Investors are also bracing for monetary policy announcements from central banks in the UK, Australia, Brazil, Poland, and Norway, which is contributing to a cautious market outlook.

On the upside, the critical resistance levels to watch are at 33.00, 33.50, and 34.00. On the downside, yesterday's sell-off at 32.50 remains a significant first support level. If this level is breached, the next support levels to monitor are 32.00 and 31.00, respectively.