Will the US Election send shockwaves through the forex market?
As if this year didn’t have enough uncertainty surrounding it, we now have the small matter of a US presidential election to add on top of that; Biden vs Trump. Election day falls on the first Tuesday in November, so the 3rd November 2020. The big question on everyone’s minds is ‘How could this affect the forex market, and why?’ The analysts here at Zenfinex give you an intuitive insight into the potential impacts of Election day below.
What could happen if Trump wins?
The main aim for the Republican party monetary policy is to reduce national debt and create more jobs in the private sector. Historically, Republican parties have been known to favour businesses and so as a result we have seen a bull market in indices such as NASDAQ100, Dow Jones and S&P500. Trump has taken to twitter many times over his presidency to boast about the fact stocks are doing so well. For example, we have seen NASDAQ100 exceed all-time highs in the middle of a global pandemic…
If you look at the graph above, you see price immediately slump off the all-time highs at around 9750. This is completely normal as investor fear was increased at this time due to the pandemic. Many would have expected this fall to continue, as the world was pretty much in lockdown. Add to this the fact there was hardly any international travel, trade between countries was limited, and job losses were surging. Despite this, the mood in the NAS100 index swiftly changed, but why? The answer is a combination of Trump power and fiscal stimulus. Price has continued to surge and not really stopped since as it made another milestone by reaching 12450, something never seen before. This is clear evidence to suggest there is just no way Trump will let stocks fail, even if it means the fed has to artificially pump them. Therefore, if he is elected once more then the sky is the limit for these US stocks.
What could happen if Biden wins?
To compare this with the potential impact of Biden winning, let’s look at historically what has happened. In the past, Democratic candidates have been viewed as less favourable to business and markets. The main reason for this is because there is an association between the Democratic party and high corporation taxes. A corporation tax is a tax on a company’s profit, and if there is more evidence of this then investors will be bearish on Biden being elected. Bearing in mind how high US indices are trading at the moment, it would not take too much noise to see a sell off of at least 2-3%, so this is definitely something to look out for. In terms of the US Dollar strength, there has been cause for concern as of late as the EUR/USD pair has shown nothing but bull signs dating all the way back to mid-April 2020 (see below).
As you can see, the March lows of around 1.07000 seem a long way away, and anyone buying this market from April to September would have had a hard time losing! Investors may have been anticipating that Trumps presidency is coming to an end with an apparent 47% chance of being re-elected. Price is currently trading around 1.17500, and there were signs of the bears creeping back into this market after it broke out of the daily range at 1.17000.
Across Trumps presidency his aggressive fiscal stimulus and trade protectionism has seen the dollar as a currency with significant strength. If Biden was to be elected, then there are concerns fiscal stimulus aggression would fall to accommodate for an overhaul of the healthcare system because of the current COVID-19 pandemic, and so we could see further downside in the dollar across the FX Market.
Will my trading with Zenfinex be affected on Election Day?
Definitely not! At Zenfinex, we are proud to provide institutional grade liquidity for retail traders. As a true STP broker you access the real market. Voting is scheduled to take place during actively during trading hours, and the official electoral results will be available in the evening. Follow the election day with us and be able to freely trade as and when you see fit.
You now know that you can trade the 2020 US Election with Zenfinex, but you may be wondering where to start? Well, you can apply for a live account or demo account with us as shown on the website. One of our account managers will always be available to guide you through the process to get started in your trading journey, and answer any queries you have.
Join our exclusive free webinar, “how to trade the US elections” co-hosted by Ken FX Freak | 07 October 2020 6:00 BST | Click here