Forex Analysis: Dollar Selling on US Election Result May Be Fleeting

The US Dollar fell on waning haven demand as risk appetite firmed following a clear-cut outcome to the US election but markets’ chipper mood may be short-lived.

Talking Points

US Dollar Falls on Swelling Risk Appetite After US Election Outcome
S&P 500 Futures Hint Sentiment Likely to Stay Supported Near-Term
Markets’ Chipper Mood May Unravel as “Fiscal Cliff” Fears Resurface
Euro May Underperform if Greece Fails to Pass New Austerity Plan

The US Dollar weakened in overnight trade as risk appetite swelled across financial markets – weakening forex traders’ demand for the go-to haven currency – in the aftermath of the US general election. The ballot handed victory to President Barack Obama while challenger Governor Mitt Romney conceded. As we argued yesterday, any outcome that produced a clear winner was likely to be greeted by investors hopeful for a swift re-orientation toward resolving the looming “fiscal cliff” fiasco.

Looking ahead, a quiet economic calendar is likely to keep the election front and center as financial markets around the world take their opportunity to respond to the results. S&P 500 stock index futures have erased earlier losses ahead of the opening bell on Wall Street, suggesting the risk-on bias into the hours ahead. Investors’ chipper mood may not prove lasting however, opening the door for the greenback to mount a swift recovery.

All signs appear to point to an extension of the status quo in the US political landscape, with President Obama’s victory matched by another Democrat-controlled Senate and Republican-dominated House of Representatives. That may spark fears of renewed deadlock as markets tremble at the thought that a set of automatic spending cuts and tax hikes slated to trigger at the turn of the calendar year will tip the US back into recession. Such prospect bodes ill for global growth in an environment where the Eurozone is contracting while China slows.

In Europe, all eyes are on Greece where the parliament will vote on an austerity package agreed-upon by the Samaras administration and the EU/ECB/IMF troika. Fears that opposition parties will torpedo the poll and delay the release of the latest tranche of bailout funds has scope to trim risk appetite and dent the ability of the Euro to capitalize on the post-US election festivities. On the data front, German Industrial Production is seen falling for a second consecutive month in September while Eurozone Retail Sales snap four months of gains to yield a negative print in the same period.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

22:30

AUD

AiG Performance of Construction Index (OCT)

35.8

–

30.9

23:50

JPY

Official Reserve Assets (OCT)

$1274.2B

–

$1277.0B

0:01

GBP

BRC Shop Price Index (YoY) (OCT)

1.5%

–

1.0%

5:30

AUD

Foreign Reserves (A$) (OCT)

49.4B

–

44.9B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP/ACT

IMPACT