Asian Open Indices fall as yields ring inflationary alarm bells
It was a sea of red for equity markets overnight, as screaming bond yields rang inflationary alarm bells so loud that even equity traders took notice.
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- Betting markets shift in favour of Harris, dampening USD strength
- Bullish momentum builds for EUR/USD, US election and Fed decision dominate outlook
- AUD/USD providing mixed signals ahead of RBA
Overview
Momentum is with Democratic US Presidential candidate Kamala Harris, if the shift in betting markets over the weekend is anything to go by. With less expansionary fiscal policy plans than Republican rival Donald Trump, traders have rushed to price in a reduced risk of a red wave in Congress. This has led to early weakness in the US dollar in Asia, and for the first time in a while, momentum in EUR and AUD has swung towards the bulls.
Betting markets swinging blue?
Aided by thin conditions with Japanese markets closed for a public holiday, major currencies jumped as trade resumed on Monday in Asia, reacting to a clear shift in betting markets away from Trump and towards Harris in both national and key swing state races. Polymarket and PredictIt, two popular betting platforms, have both reported a significant move towards Harris in recent days.
Here are the latest US election probabilities from Polymarket.
Source: Polymarket
And for PredictIt.
Source: PredictIt
While there's scepticism around the reliability of these platforms, it's undeniable they're moving markets as polling day approaches. The US dollar has been hammered to start the trading week, reflecting betting markets now pricing in a tighter race and an increased risk of a divided Congress compared to just a few days ago.
EUR/USD reverses the reversal
Despite a key reversal candle on Friday, the shift in betting markets has largely undone that move on Monday, giving traders a taste of what we might see when election results start to roll in late Tuesday in the US.
Source: TradingView
Harris’s momentum in betting markets is being mirrored in momentum indicators for EUR/USD. RSI (14) is trending higher, with the bullish signal confirmed by MACD crossing over from below. Despite Friday's key reversal, I wouldn’t put too much weight on the signal given whippy price action and the lack of a lengthy bullish move leading into it. The bias remains to buy dips in EUR/USD near-term, particularly if momentum in betting markets stays with Harris.
Levels to watch (EUR/USD):
Support: 1.0832, 1.0778, 1.0768 (key uptrend)
Resistance: 1.0882 (downtrend), 1.0906, 1.0952
AUD/USD rangebound before RBA
The technical picture for AUD/USD isn’t as bullish. The pair has been sandwiched between horizontal levels for the past week, despite today's bullish reversal. Momentum signals are mixed, with the RSI (14) gradually trending higher but not confirmed by MACD.
Source: TradingView
Big moves around the Reserve Bank of Australia (RBA) interest rate decision on Tuesday are unlikely as the bank is expected to remain on hold. This leaves the US election and the Fed meeting later in the week as the main drivers.
Levels to watch (AUD/USD):
Support: 0.6537, uptrend around 0.6500, 0.6466
Resistance: 0.6615, 0.6660, 0.6692
-- Written by David Scutt
Follow David on Twitter @scutty
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