Today’s profound market shifts highlight significant recalibrations driven by Trump’s Senate victory, which signals a return to fiscal conservatism with a clear focus on pro-business policies that support a robust US Dollar. The immediate effects on EUR/USD and the broader Dollar Index (DXY) underscore the market’s shift in response to policy expectations under Trump’s leadership, especially given the heightened likelihood of protectionist measures. With tariffs set to rise and corporate tax cuts on the agenda, investors are now positioning for a sustained appreciation of the USD, making this environment particularly challenging for major US trading partners, especially the Eurozone.

For a short-term view on the Dollar Index, the following technical setup could support a short-term countertrade strategy that leverages both the strong post-election upside momentum and the market’s mean-reversion tendencies. As shown in the chart, the US Dollar Index, which tracks the Greenback’s value against six major currencies, has surged to 105.40 today. Our recent medium-term analysis suggests that resistance will likely strengthen as the DXY approaches the upper boundary of its trend channel, in the 105.70-106 range, which can lead to a bearish pullback towards 105.50:

A firm USD typically dampens growth prospects for economies heavily reliant on exports to the US, as is the case for the Eurozone, UK, and Canada. The EUR’s sharp decline, nearing 1.0650 against the USD, reflects these mounting headwinds, amplified by expectations of ECB policy loosening to offset potential European growth deceleration. The Dutch bank’s analysis projecting a 1.5 percentage point hit to European growth under Trump’s tariff regime only deepens concerns, with implications that could force the ECB into a more aggressive easing cycle. Should the ECB follow through with a 50-basis point rate cut in December, it would mark a decisive shift aimed at countering trade-induced growth pressures—especially as Europe grapples with the added drag of tightening financial conditions.

Meanwhile, investors are keeping a close eye on the Federal Reserve’s upcoming decision. With a 25 bps cut priced in, the focus is on potential signals regarding the December meeting. The Fed’s cautious approach, contrasted with the anticipated ECB rate cuts, underscores a widening interest rate differential that further bolsters USD appeal. The market’s movement in US 10-year benchmark yield reflects this sentiment, as investors starts to gradually price out a Fed rate cut in December, signaling a shift in market expectations toward a more hawkish stance or, at the very least, a pause. The relative appeal of USD assets, particularly Treasuries, is therefore likely to persist, drawing capital inflows that reinforce the Greenback’s strength:

The outlook for commodities, specifically Gold, is also noteworthy. Despite recent pressure on Gold prices amid USD strength, technical indicators suggest that a buying opportunity could be emerging. The lower bound of Gold’s trend channel has historically served as a reliable support level, and current levels may catalyze a short-term bounce:

For GBP/USD, Trump’s fiscal agenda also delivers strong headwinds. The Pound’s decline near 1.2860 against the USD reflects investors pivoting towards USD assets, but it also sets up a delicate balance for the BoE. The BoE’s expected rate cut tomorrow, likely a 25 bps move, would be its second easing this year. Investors anticipate a 7-0 vote split, but the press conference with Governor Andrew Bailey will be critical. Markets will closely parse his comments on how the Trump’s victory and UK’s fiscal outlook could influence future inflation and rate policy into 2025. Given the heightened sensitivity around inflation expectations, any signals on fiscal-monetary interplay could have lasting impacts on GBP sentiment.