Early last week the dollar came under selling pressure as traders expressed their uncertainty ahead of the US midterm elections. It continued to weaken after the Republicans increased their majority in the Senate, but lost control of the House of Representatives. This leaves Congress gridlocked which for one thing means that the Trump administration will struggle to push through further tax reductions or make cuts to business regulations. The EURUSD briefly hit 1.1500, sterling/dollar  bounced to 1.3170 while gold topped $1,240 for the first time since July this year.

But the dollar began to recover as investors factored in the positives of gridlock – mainly that it ensures the status quo by reducing the opportunities for politicians to make sweeping changes to policy.
The dollar got a further boost from a hawkish FOMC statement which followed the US Federal Reserve’s monetary policy meeting. The Fed kept rates unchanged as expected, but signalled that it would be tightening again next month.
 
At the start of this week the dollar rallied further. The EURUSD has smashed below its summer low of 1.1300 to trade at its lowest level in 17 months. Investors are pricing in the continuation of Fed rate hikes while handicapping the euro as Italy faces crunch time with the European Commission concerning its deficit-busting budget proposals. Meanwhile, sterling has fallen sharply across the board amid a reported cabinet rebellion against UK Prime Minister Theresa May’s Chequers plan for Brexit. Overall the outlook remains positive for the dollar but traders should keep a close eye on news flow.

Data-wise, Tuesday sees the release of UK unemployment numbers and ZEW Economic Sentiment surveys from Germany and the Euro zone. Wednesday morning sees the release of Chinese Fixed Asset Investment, Industrial Production and Retail Sales. Later on, we have UK and US CPI, and Euro zone Flash GDP. On Thursday we have Australian Unemployment, along with UK and US Retail Sales.
 
We also have speeches from Fed Chairman Jerome Powell on Wednesday and Thursday, then on Friday we have Bank of England Inflation Report hearings and a speech from ECB President Mario Draghi.
 
Have a great week!