04.11.202406:52 Forex Analysis & Reviews: EUR/USD Weekly Preview: November FOMC Meeting and New U.S. President

The week ahead is set to be the most significant for the EUR/USD pair and other dollar pairs. The outcomes of the November FOMC meeting and the U.S. presidential election results will substantially impact the U.S. dollar. All other fundamental factors will play a secondary, supportive role. Therefore, we will focus on the key events of the upcoming week.

U.S. Presidential Election

The President of the United States directs the country's foreign policy and sets the main external policy course, which is why the whole world, including financial markets, closely watches the presidential elections.

Everyone remembers how Trump's foreign policy during his presidency affected the entire world. For instance, during the trade war with China, the Republicans pressured other countries as well (notably to prevent Huawei from creating 5G mobile networks). Another example is when Trump threatened to impose tariffs on all European car imports unless the EU lifted trade barriers and tariffs on U.S. goods (a move that could have impacted almost every EU member state). Canada and its aluminum industry also fell under his scrutiny, among other instances.

These events are still fresh in the minds of market participants, which is why a "second coming of Trump" would be perceived by traders accordingly. Although Trump advocates for the devaluation of the U.S. currency, the dollar, as a safe-haven asset, would experience strong demand "at the moment" if the Republican wins. The race remains tight: just two days before the main voting day, the candidates are neck and neck, with the gap between Donald Trump and Kamala Harris within the statistical margin of error.

Candidates need 270 out of 538 electoral votes to win. Republicans and Democrats are expected to secure around 219 and 226 votes in the states where their voters traditionally dominate. Thus, the primary battle will unfold in seven "swing" states, where voter preferences change depending on the election cycle.

Poll results in these states vary widely. For instance, according to a survey conducted by Times/YouGov from October 25-31, Harris leads Trump in Wisconsin, Pennsylvania, Michigan, and Nevada—four of the seven swing states. Meanwhile, Trump maintains a lead in North Carolina and Georgia, while both candidates are tied in Arizona. However, it is essential to note that Harris's and Trump's leads in these swing states fall within the margin of error.

Another survey by AtlasIntel predicts a Republican victory in all swing regions, with Trump holding an overall 49% to Harris's 47.2%. AtlasIntel claims its surveys were the most accurate four years ago, accurately forecasting the results in each swing state.

A FiveThirtyEight poll also predicts a Trump victory, predicting that the Republican will win 62 electoral votes from the swing states and triumphantly return to the Oval Office.

The conflicting poll results maintain suspense and reflect intense political competition. If the election outcome reveals a clear winner, the tension will rapidly release—favoring the dollar (if Trump wins) or weakening it (if Harris prevails).

November FOMC Meeting

According to CME's FedWatch tool, the probability of a 25-basis-point rate cut following the November FOMC meeting is 99%. There is also a 1% chance that the Fed will leave all monetary policy parameters unchanged.

If the base scenario, which is widely expected, plays out, it will not significantly impact the U.S. dollar. Traders are more interested in prospects, especially given the anomalous October NonFarm Payrolls report, which showed a 12,000-job increase (versus a forecast of 110,000).

In my view, the outcome of the November meeting may support the greenback. First, the weak job growth is attributed to extraordinary circumstances (hurricanes and a massive Boeing workers' strike). Therefore, the Federal Reserve may overlook the October figures. Notably, the ADP report indicated a 230,000 job increase, which is likely more accurate due to its different calculation methodology.

Another argument for the Fed maintaining a "moderately hawkish" stance is inflation. Despite the weak employment component, the inflationary indicators in the NonFarm report showed positive trends. Average hourly earnings rose 4.0% year-on-year in October (up from 3.9% in September). Monthly wage growth reached 0.4%, exceeding the forecast of 0.3%.

Additionally, core inflation is on the rise. The core Consumer Price Index (CPI), excluding food and energy prices, came in at 0.3% month-over-month (forecasted at 0.2%) for the second consecutive month. On an annual basis, core CPI unexpectedly accelerated to 3.3%. The core Producer Price Index (PPI) was 0.2% month-over-month (in line with expectations) but rose to 2.8% year-over-year, surpassing the forecast of 2.7% and marking the strongest pace since January. The core PCE index also remained strong at 2.7%, contrary to the consensus forecast of 2.6%.

These factors suggest that the Fed will likely maintain a cautious approach to the pace of easing monetary policy. The central bank is expected to signal continued 25-basis-point rate cuts while closely monitoring key macroeconomic indicators. The Fed may also express concern over accelerating core inflation, providing additional dollar support, and downplaying the weak NonFarm report.

Conclusions

The FOMC meeting results will be announced on November 7 after the U.S. presidential election, making it impossible to predict the dollar's behavior given these significant events. One might anticipate the dollar's response to a Trump victory (the U.S. dollar index could surge) or a Harris win (a more subdued reaction, potentially pressuring the dollar). The market reaction to the November FOMC meeting results can also be forecasted. However, the combination of these fundamental factors introduces uncertainty.

Discussing technical levels for EUR/USD is also futile, as even the most reliable support/resistance levels could be quickly swept away by a surge of volatility. Until November 5, or more specifically, until the night votes are counted in the U.S., the dollar will likely be in demand due to overall market nervousness. The subsequent direction of the dollar, and hence EUR/USD, will depend on the new occupant of the White House and the outcome of the November FOMC meeting.