Let’s get this out of the way quickly, everything I may say in the following article could be proven to be wrong, but history tells us the U.S financial markets and global assets will react strongly to the outcome of the U.S election next week. Voting will take place on the 5th of November and by early into the 6th of November there may be a clear winner for President. Asian markets will get the first chance to react to results and financial institutions will be nervous no matter who wins, but there are a few road signs which suggests financial institutions have already started betting on the outcome.
Who Wins and the Possible Reactions to Trump
The USD has gained a considerable amount of strength the past handful of weeks. While some may simply brush this away and claim it is because of nervousness surrounding the U.S Federal Reserve and what they will do on the 7th of November regarding interest rate policy, this is likely not the whole story. If financial institutions are leaning into the notion that Donald Trump will win the White House, it is also likely they are betting on a stronger USD emerging.
This doesn’t mean the USD centric strength will continue into the mid-term, in fact it may only last a day or a week, but the idea that Trump will cause economic storms via new tariffs is likely being taken seriously. That isn’t to say I can predict what the outcome of potential new tariffs will be if charged to China, the European Union and elsewhere, but the unknowns make safe haven trading – meaning buying the USD and gold the speculative plays. And perhaps that is some of what we have seen since early October.
Potential Reversals Occurring Lightning Quick in the USD
There is also a potential that a Trump victory which may have been priced into the USD already via its bullishness would then start to fade and that a reversal lower will occur. However, timing volatility in the USD and gold – and yes U.S equity indices – will be extremely dangerous. Let’s remember that global markets greeted the news of a Trump victory in 2016 with a quick downturn in global assets, but then almost as quickly the markets on the major stock indices started to soar, particularly in the U.S indices.
Therefore, traders stepping into the early moments of a potential Trump victory would have to be on the lookout for swift reversals.
Having believed Trump could not possibly win his first term for U.S President, very few financial institutions priced in his potential win.
This time around will likely be different meaning volatile reversals in the USD could be demonstrated.
Day traders who want to participate in Forex are advised to be cautious.
Those who are pure gamblers and are going into the election results as they are being announced, need to understand they will be dealing with extremely fast conditions which will likely create wide price ranges and huge spreads via bids and asks as financial institutions handle the influx of volume.
A Harris Victory and a Surprised Marketplace
If Kamala Harris wins the election this would likely be a surprise to most financial institutions. If the bigger traders believed Harris was going to win it is likely the USD would have been more tranquil the past couple of weeks. Perhaps I am completely wrong and reading polling incorrectly, but it does appear Trump is ahead in critical swing States in the U.S, but if Harris wins the USD will react too.
And its direction will be volatile, and reversals and sudden momentum shifts in Forex should be expected. Yet, the biggest place where danger perhaps exists for day traders if Harris wins the presidential race are the reactions which might be seen in U.S equity markets. Financial institutions may turn cautious and while a selloff of vast proportion is unlikely to unfold, nervousness would likely be expressed in the opening hours for global markets.
Outcome and Interpretations of U.S Equity Indices
Financial institutions are smart, most are not saying aloud who they favor in the U.S election. But certainly they have positioned themselves for the potential outcomes. Option markets in equities and Forex should be watched closely. As a barometer in the next couple of days before the U.S election, traders should keep their eyes on the USD, U.S equities and gold.
Equities may become rather choppy over the next couple of days, but Forex and gold may remain rather combustible because of the fact the U.S has a lot of economic data coming at the end of this week via the Non-Farm Employment Change numbers.
If a trader wants to take advantage of a whim before the election results are known it amounts to gambling. Because financial institutions may have bought the rumor already (a potential Trump victory) and be ready to cash in on the fact – meaning profit taking may be seen also in the markets which could cause additional volatility in the aftermath of the voting results for a week or two.