US Dollar weakness was a glaring theme throughout Tuesday’s trading session as markets positioned for a blue-wave on election night. USD price action gravitated lower seeing that a Democratic sweep would likely lead to the passage of a massive fiscal stimulus package in the near future, and a Biden presidency would likely be relatively friendlier on trade policy with Canada.

In contrast to a Biden shoe-in hinted at by political polls, however, reality has been quite the nail-bitter. Betting odds for a Trump victory ping-ponged throughout election night and into Wednesday morning, which corresponded with aggressive repricing of US Dollar weakness. For example, USD/CAD price action was trading around the 1.3100-handle until news crossed the wires that Trump would win Ohio and Florida, two states historically needed for a GOP presidency, which sparked a 200-pip surge by the US Dollar against the Loonie.0

USD/CAD Price chart: daily time frame (18 Jun to 04 Nov 2020)

(Click on image to enlarge)

As Wednesday’s trading session progressed, betting odds flipped back in favor of a Biden victory as he turned Arizona while Trump’s lead in Michigan and Wisconsin thinned. This send USD/CAD snapping back to intraday lows. Current numbers have Joe Biden with 238 electoral college votes and Donald Trump with 213. That said, it looks like the election will come down to the results of Michigan and Pennsylvania.

USD/CAD price action could remain under pressure as mail-in ballots are tallied and potentially help shore up odds that Biden will steal the White House. Great uncertainty regarding the final election outcome still remains, however, and is a theme likely to continue fueling US Dollar volatility. Prospects for a contested election cannot be entirely discounted yet either.

If this threat gains traction, or if evidence crosses the wires pointing to a Trump re-election, the US Dollar could stage a face-ripping reversal higher off technical support provided by the 1.3100-price level and its bullish trend extended from the 31 August and 19 October lows.

A move to the upside by USD/CAD prices might face pushback near the negatively-sloped 100-day simple moving average, but eclipsing this level may open up the door to another look at month-to-date swing highs. On the other hand, breaching the area of buoyancy around 1.3100 could tee up a sharp extension lower toward the 1.3000-mark.