Could the U.S. Election Release the Bulls?
Justin Burkhardt | FXFocus.com
The Bear. Or the Bull. That is the question. With polls tightening, traders around the world are looking for that perfect hedge to be in the green regardless of who takes office in the coming presidential election in November.
Though the outcome of this event is still unclear the anticipated response is. The markets clearly react differently to each candidate, which is obvious if we analyze how the market performed during the recent Presidential debates. In the first debate Romney walked away with a strong win and the U.S. Dollar rallied. In the second debate however Obama won and the U.S. Dollar declined. This theory was further confirmed in international markets. The Euro along with the Australian Dollar advance with an Obama win and declined with a Romney win.
The conclusion that we can draw from this is that the U.S. Dollar has more confidence in the Romney administration than it does an Obama administration, but that is not necessarily the case for all other asset classes. Over the last four years the S&P 500 has rallied 120 percent under the Obama administration. The QE market flood caused tidal waves in major indexes, but that volatility could be coming to an end depending on the outcome of this election.
If the Presidential nomination swings in Romney’s favor the major indexes will likely decline because Romney has made it clear that QE wouldn’t last under his candidacy.
Regardless of who takes office, the fiscal cliff remains in sight. The EU crisis has reached critical levels, the real unemployment levels here on the home front are far worse than the mainstream media lets on and our next steps as a nation are crucial.
FOREX Insights
Caution is key prior to the outcome of big events such as this one. The presidential announcement will likely cause a spike in the market that could swing in either direction. So in order to hedge against risk the safest move is to wait until after the announcement to take a position and then ride the emerging wave.
The EURUSD has been on the decline this week falling from 1.306 to 1.288 and is approaching its first strong support level at 1.285. I am speculating that a Romney win could give the pair the momentum that it needs to push past major resistance levels working its way back down towards parity… But its yet to be seen how that actually plays out.
Your currency analyst,
Justin Burkhardt
Disclaimer: I have no positions in any of assets mentioned, but may initiate a (long or short) position in the EURUSD over the next 72 hours
