US Election Uncertainty is Rocking the Markets
Eric Furstenberg • 3 min read
Market players are on the edge of their seats, anxiously awaiting the results of the US presidential elections. It is thought that Hillary Clinton’s chances of a victory on Tuesday stand at about 90 percent. The FBI said on Sunday, that no charges would be laid against her if she had used a private email server for government work (as it has been alleged). This strengthened the US dollar mightily, and also caused an aggressive rally in stocks, as risk appetite surged. The Canadian dollar and the Australian dollar (of the major currencies) also benefited from this news and were even stronger than the US dollar on Monday and Tuesday. The British pound, Euro, Swiss Franc, and the Japanese Yen all declined sharply against the dollar on Monday and continued to trade lower on Tuesday.
The final results are expected to be broadcast over TV at about 04:00 GMT on Wednesday morning. The first exit polls are expected to come out at 00:00 GMT. These are a projection of what to expect from the election.
There’s been some decent action in the currency market today. The Australian dollar performed extremely well, and the Canadian dollar also impressed. As I’m busy writing this article, the US dollar is giving back a little bit of its gains which it accumulated since the weekend. Let’s looks at some charts:
AUD/USD Daily Chart
Finally, the pair has broken out of the wedge wherein it was caught up for so long. The pair hasn’t cleared all the recent important swing highs yet, but they are definitely well in reach for the bullish market players to take them out soon. The current bullish momentum on this pair is impressive, and if Hillary Clinton walks away with the victory, this pair could possibly strengthen even more. The Australian dollar is a risk-sensitive currency, and a risk-on environment favors Australian dollar strength. It’s not difficult to see the strong bullish momentum on this hourly chart of the AUD/USD:
AUD/USD Hourly Chart
Notice the sharp angle of the last six candles’ ascent.
If you’re trading the elections, you also need to be prepared for a victory by Donald Trump, the Republican nominee. His chance of beating Hillary Clinton is small, but it is possible. You need to be aware that a Trump victory would shake the markets tremendously, and the volatility would be immense.
USD/JPY Daily Chart
This is an important major pair to watch over the next 48 hours. The USD/JPY is also greatly affected by risk sentiment, especially because the Japanese Yen is such an important safe haven. When investors get scared, they often flee to the Yen. To borrow Japanese Yen is very cheap because of the currency’s low interest rate. Investors consequently like to buy higher yielding assets with Japanese Yen. These higher yielding assets are normally riskier assets, and when fear starts to outweigh investors’ greed, these riskier assets are converted back into Japanese Yen. These repatriation flows can have a great effect in strengthening the Yen in troublesome times. If Donald Trump was to win today’s election, the recent bull-run on the USD/JPY could quickly reverse. A Trump victory would trigger uncertainty about US foreign policy, and other factors like international trade and domestic economic conditions. If Hillary Clinton wins, the USD/JPY would probably remain supported, and possibly gain some more ground over the next few days.
This pair has really gained a lot this week, and I wouldn’t be surprised if we saw additional upward pressure on it over the next few days.
Although the US dollar has performed well over the last two days, the Canadian dollar has performed much better. The Canadian dollar is a commodity currency which can be placed in the same class as the Australian dollar which is also a commodity currency. You will notice that many times these two currencies are highly correlated as well. So far, these two currencies are both much stronger than the US dollar this week. Look at the following chart:
USD/CAD Daily Chart
This pair could possibly trade lower from here if the outcome of the election favors Canadian dollar strength. Nevertheless, I don’t like the short idea, because the trend is up, and the price is at an important zone which was a former resistance level, and could possibly become an important level of support.
Tomorrow we have US crude oil inventories at 15:30 GMT. This could be a notable mover of the USD/CAD because the Canadian dollar is highly correlated to the oil price. The US elections will, of course, occupy center stage in the financial world tomorrow. This could steal away some of the potential volatility of the US Crude oil inventories release.
Have an excellent time trading out there!