09.10.202015:31 Forex Analysis & Reviews: Dollar's fall is inevitable amid pressure from stimulus package and US elections

Based on recent events, the stimulus package for the US economy will be allocated regardless of who wins the presidential election. The negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on the stimulus package resumed two days after Donald Trump's cancellation.

In response, investors are showing positive results, and US markets are preparing to end the week with the best results. However, a Biden presidency can provide the economy with the largest package of support. Now UBS Asset Management, for example, estimates the probability of a Biden victory at 75%. This information has a calming effect on the market, as you can see by the way volatility decreases as the election date approaches and the favorite is determined.

The dollar showed a weak result this week. Its position worsens on Friday as the number of bets on the Victory of democratic representative Joe Biden increases. Against this background, developing country assets and commodity currencies are growing in the short term. The Canadian dollar showed the strongest weekly growth in more than two months, adding 0.9% against the greenback, and approaching the level of 1.3186. In this regard, it is worth paying attention to data from the Canadian labor market for the month of September which may cause an increase in volatility in CAD quotes.

Despite the current positive, the positions of the loonie remain vulnerable in the medium term due to the position of the Bank of Canada on monetary policy and a possible decline in oil prices. The head of the local regulator made it clear that the Central Bank does not intend to abandon the current extra-soft policy.

As for the dollar index, there is currently a struggle for the trend line. If sellers manage to finally break through the long-term downward trend level below 95.5, then a clear impulse to sell will open.

Yuan will welcome Biden's presidency

The yuan went up as investors began to look closely at Biden. The Chinese currency appreciated more than 1%, which was the largest session gain in four years. Undoubtedly, the leap can be called partly catching up, as the Chinese sites are now working after a long weekend. Nevertheless, there is a sense of this movement. Traders reacted by buying the yuan as there was hope for better US-China relations if Joe Biden did become president, who is likely to be less inclined to impose trade tariffs and renewed trade disputes under his administration.

A major change in the trading band of the Chinese yuan is also evidence that China's policies are not against its increase. Thus, the markets began preparations for the yuan rally.

For now, however, Trump remains president and continues to threaten China. In his recent tweet, Trump said that "China will pay a heavy price for what it has done to the world" and to the Americans. Recall that the former mayor of New York City and Trump's lawyer has accused China of a coronavirus attack on the United States, stressing that it is Beijing that is responsible for infecting Trump.

In a new video, Trump promised older Americans (this is the part of the population that supports Trump) that all citizens of the country will "immediately" have free access to the drugs that were used to treat him.

Trump also did not forget to "ride" around Biden, accusing him of failing to fight the swine flu and calling him a talker.

Meanwhile, the latest polls have shown Biden's lead over Trump is widening, with the Democrat leading in seven key states, including those where Hillary Clinton has failed to keep.

Elections don't count, dollar devaluation will help America.

The dollar should fall, regardless of who wins the elections in November, since the devaluation of the national currency is the only way to solve problems in the United States.

Citigroup predicted that in the medium term, the greenback will inevitably weaken. You just have to wait. This will be facilitated by an ultralight monetary policy with quantitative easing, low rates, and medium inflation targeting. In addition, the US deficit is growing rapidly at a time when domestic savings are insufficient to cover it.

America will need capital inflows from outside, but foreign investors may demand a discount on US assets at the expense of higher yields or a lower dollar. Treasury yields are close to historical lows, which means that the only way out in a situation of deteriorating fundamentals is to reduce the dollar.