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AUD/USD Selloff May Deepen With Stalemate on Fiscal Talks. Biden Leads

AUD/USD Selloff May Deepen With Stalemate on Fiscal Talks. Biden Leads

Dimitri Zabelin, Analyst

2020 Election, AUD/USD Analysis, 2020 Polls, Biden-Trump Spread - Talking Points

  • Biden is leading in the polls but a last-minute surprise could be in the cards
  • Covid-19 case spike, fiscal stalemate souring sentiment and derailing outlook
  • AUD/USD puncturing support at 0.7018 may open the door to further declines
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5 DAYS UNTIL THE US PRESIDENTIAL ELECTION

A new poll put out by BBC News shows former Vice President and Democratic nominee Joe Biden leading ahead of incumbent President Donald Trump by a 9-point margin five days ahead of the election. This is roughly 2 points higher than the 7-point average Mr. Biden has maintained for a few weeks apart from a brief convergence in September where betting odds showed almost a reversal of this dynamic.

2020 US Election Polls

Chart showing 2020 election polls

Source:BBC News

As noted in my prior report, mail-in votes have overwhelmingly come from Democrats which may be giving markets a skewed sense of certainty. Republicans are more likely to vote in-person, and as a result, investors may see a huge spike in votes for Mr. Trump. This may rattle markets if traders then start believing that the race may be tighter than expected.

Fiscal Stimulus Stalemate

A major market mover continues to be the bipartisan stalemate over the size and allocation of another fiscal stimulus package. Fed Governor Lael Brainard warned that lawmakers not passing another package and soon poses “the most significant downside risk”. Monetary authorities have repeatedly stressed the necessity of additional fiscal stimulus with the central bank doing all that it can to stabilize financial markets.

The cost of intransigence among lawmakers comes at a time when Covid-19 cases are spiking across the world and in the US, the epicenter of the coronavirus. With looming lockdown orders and no additional aid, economists and investors alike are worried that the brief spike in economic activity may be followed by weaker and more precarious growth. These premonitions may hurt cycle-sensitive pairs like AUD/USD.

AUD/USD Outlook

AUD/USD is testing frequently-challenged support at 0.7018 after failing to break above a multi-week downtrend on multiple occasions. As it trades deeper within a compression zone – marked by descending resistance and the aforementioned floor – the possibility of a zealous breakout may increase. Why is this area technically-significant?

AUD/USD - Daily Chart

Chart showing AUD/USD

AUD/USD chart created using TradingView

Breaking below support and failing to puncture the slope of depreciation would likely speak to an underlying bearish bias that would be broadcasted to other traders. This narrative – combined with precarious fundamentals – could reinforce a gloomy outlook for the pair and drag it lower. Selling pressure may abate around 0.6829.

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or@ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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