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What will happen to the dollar after the November 6 elections?
October 25, 2018 7:22 pmVideo
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The upcoming elections in the United States cannot only spoil the health of the dollar, but also throw it off the pedestal. On Wednesday, the US currency peaked from the beginning of the year, while the dollar index tested resistance at 96.5.
The main pair EUR / USD reached 1.1380, quite a bit left to the minimum of this year. In the event of a breakthrough of 1.13, euros can accelerate the fall, then the quotes risk falling below 1.10.
The dollar has two main factors contributing to the strengthening.
Risks in the global financial system are growing, which always works to the benefit of the dollar. But in less than two weeks, the midterm elections will be held in the United States, and so far, the situation is not the best. There is reason to believe that the vote will lead to the formation of a split Congress and will push the dollar to the worst marks.
“A split in power may eventually sow the seeds of uncertainty. We could see a return to the topic of convergence, which places less emphasis on the superiority of US policy,” commented Mazen Issa, an analyst with TD Securities, in an interview with Bloomberg.
American papers, until recently, surpassed most of the world’s stocks, attracting cash flows to the dollar. However, in the absence of political clarity, the effectiveness of the measures taken by the White House and the fiscal support for assets may deteriorate. Markets will once again raise explosive themes for the dollar, which significantly weakened its position last year and early this year.
If investors decide to try opportunities outside the US, then this can redirect capital, the “American” will get a real slap in the mouth, the currency strategist believes. Managing managers will likely begin to focus more on foreign events, such as the policies of the Bank of Japan and the ECB.
In TD Securities, when implementing the split Congress scenario, it is advised to open short positions on USD / JPY before the end of the year. According to bank analysts, you need to bet on the sale of the dollar when its price rises to 113 yen, with critical support at around 111.60. From the USD / JPY by the end of this year, experts are waiting for big movements.
Who leads the midterm elections?
Closer to the date of the elections (November 6), the Democrats somewhat strengthened their positions. They can take control of the House of Representatives from the Republicans, who, in turn, will take control of the Senate, according to polls of a number of sociological companies.
Representatives of the Democratic Party, among other things, put on the low ratings and relative unpopularity of President Donald Trump, as well as on the fact that not everyone, mostly rich Americans, got the benefit from the realized fiscal stimulus. In addition, there has been an increasing talk of a “blue wave” that will knock down Republicans in Congress. (Blue is the corporate color of the Democrats, red is the Republican).
In response, the host of the White House decided to appease voters a little, saying that the Congress after the elections will consider the question of reducing the tax for the middle class by 10%. In addition, Trump has a powerful trump card in his hands, the strong economic growth, “meek” inflation and record unemployment in half a century.
True, Democrats economic achievements attributed to the previous President Barack Obama, and not Donald Trump. It is rumored that the current president has a limited impact on the economy, since taxes and budget spending are entirely the responsibility of Congress, and the discount rate is in the strong hands of the Fed.
The material has been provided by InstaForex Company – www.instaforex.com
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