Stocks growth is slowing as the first presidential debate approaches

The stock indices have had a very good entry into the new week, which in part let us forgot about the entry into the week before which began with a significant decline. The reason for the growth was a slightly better sentiment from the end of last week, the use of lower valuations, and what was perhaps the last chance for investors to enter positions before the first presidential debate, which is scheduled for Tuesday night. The start of Tuesday's session does not look so positive, but growing uncertainty is helping the US dollar.


The beginning of market volatility?

The US election is a source of uncertainty that will accompany the whole month of October and that has the potential to be a driver of financial markets in the medium-term horizon. That is why today's debate is so important because it is likely to set the tone for the forthcoming debates, according to which the markets will evaluate who currently has the upper hand and a better chance of winning. However, we can expect volatility even after the elections. The thing is that  Donald Trump may not accept the result in the event of defeat, and the legislation is absolutely not ready for a similar scenario. In the whole US history, it has never happened that a president has refused to acknowledge defeat and a peaceful transfer of power.


Banks and institutions are preparing the US dollar

As a result, we are currently witnessing a revision of the view of large banks and investors on the US dollar which should be done by the end of this year. It is the expectation of continuing uncertainty that forces many investors to increase their position on the US dollar again, which subsequently strengthened by a significant margin in September. Large investment banks have already begun to reassess the target price on the US dollar index, or have lowered the target on the EUR / USD currency pair. These banks include, for example, Credit Suisse or Bank of America. For Credit Suisse, the question now is whether to stick to the original target of 1.21 EUR / USD at all or to focus fully on the new target of $ 1.16. The reason for the weakening of the euro is not only the stronger dollar but also the EU's plan to combine the debt of member states. The spread of coronavirus, which slows down the economic recovery, is also playing a big role here. 


It would be a mistake to stop believing in the US dollar, which in recent weeks has reminded us why it is the number one reserve currency. The US Fed has cut rates close to its historic lows, signaling that their growth is not planned until 2023. At the same time, the money printers are working overtime, providing markets with huge liquidity in the form of quantitative easing. During the summer, this may have convinced many investors that the dollar’s prime time is over. However, the dollar can also suffer from political uncertainty, which is concentrated mainly in the United States.

From a technical point of view, the level of 1.15 is an interesting one, as the market has created a local maximum and there is 38.2% of the last swing.


Chart: Daily EURUSD chart (Source: cTrader PurpleTrading)


What to expect from the evening debate?

  • Trump and Taxes: Undoubtedly, the debate will revolve around a report from The New York Times stating that Trump has not paid any taxes in the last 10 years. In 2016, when he was elected president, he paid only $ 750 in tax and the same amount was paid by him the following year. According to a New York newspaper, Trump's records for the tax office portray him as a businessman who earns hundreds of millions of dollars a year but constantly reports losses to avoid paying taxes.
  • Trump's response to the coronavirus: A topic that has played an essential role in the majority of Joe Biden's speeches so far, in which he was criticizing the policy of the US president. Trump keeps repeating the same story, saying that China is to blame for the virus, pushing for more frequent testing, and recalling the possibility of an early vaccine.
  • Republicans ignored the traditional principle they had created four years ago and pushed for the nomination of new Supreme Court Justice Amy Coney Barrett. It was Republicans who refused to consider nominating then-President Barack Obama nine months before the election.

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