FXStreet reports that investors sent EUR/USD lower, US yields lower and equity futures (in particular tech) higher, as investors have priced out the probability of a big, ambitious relief package being approved in early 2021, per Danske Bank.

“Scenario 1. In case of a clean sweep, the short-term focus will be on the handling of COVID-19 and short-term relief. In early 2021, we expect Congress to approve a big relief package (+$2,000 B). Further out (late 2021/early 2022) focus is likely to change to tax reform (higher taxes on corporates and high-income earners) and a bigger spending package (focus on infrastructure, green energy, health care, education, etc.). On FX, we expect EUR/USD to move above 1.17, towards 1.20 on renewed market momentum for reflation trades.”

“Scenario 2. Biden wins the presidency but with a divided Congress. Short-term, that means that the gridlock may continue and, at best, we may only get a small relief package. Further out, it means that taxes on corporates and high-income earners will not increase and that there will be no major increase in federal spending on infrastructure, green energy, health care etc. On FX, the EUR/USD range is set to shift lower to 1.15-1.18 from 1.15-1.20. Market focus to shift to global manufacturing, Brexit and COVID-19.”

“Scenario 3. Trump wins the presidency but with a divided/Democratic controlled Congress. In this scenario, the likelihood of a big relief package seems low. Trump will not be able to extend his 2017 tax cuts. On FX, the EUR/USD range is set to shift lower to 1.15-1.18 from 1.15-1.20. Market focus to shift to global manufacturing, Brexit and COVID-19.”