Market News & Insights
8 November 2016

Voters to Decide Dollar Direction

The “Clinton is innocent” risk rally saw a surge in demand for riskier assets to welcome the trading week. Asian equities rallied at the open, leading to a positive day in Europe which followed its lead, but US markets were the outperformers, with the Dow and S&P both rallying over 2% and erasing much of November’s losses. There was similar positivity for the USD, the timing of Clinton’s clearing couldn’t really have been better, and while the damage has likely been done, markets see otherwise with the greenback also up 1% at one stage, with the USD index finally settling the day up .8%. All focus will be stateside for many, as today’s vote is not just about “The Donald” and Hilary Clinton, it will also decide how the house and the senate will be split and all carry implications for US policy, markets and the USD. Clinton appears to maintain a narrow lead thus far, but this is far from over and we are no doubt in for a long day, and we expect to see increased volatility across markets as the day progresses and details emerge.

This is not just a US centric issue, this has global attention and with geopolitical tensions across the world on the rise, the outcome of today’s vote may have long lasting implications for everyone. Focusing back on policy and markets, the SNB have vowed to intervene in currency markets should it be required post-election, and we would not be surprised to see action from other central banks should it be required, especially looking at the Riksbank in Sweden and the BoC in China and their recent moves. Again, we would expect to see USD strength should Clinton emerge to be the next president, while a Trump victory will bring some uncertainty in the shorter term and with that a weaker USD and likely some risk aversion before markets find some balance post reaction. We are not expecting Brexit style reactions in markets as some appear to be shaping up for, but some volatility later in the evening is almost guaranteed.

With that in mind we’ll take a look at some key levels across some of the major currency pairs.

EURUSD:  We are sitting almost in the middle of the last 1 month range in EURUSD at 1.1052. October highs just below 1.1250 and lows at 1.0851 now offer key resistance and support levels respectively. A break above 1.1250 should once again run into sellers above 1.1300 to 1.1400 which has provided EURUSD supply for much of the last two years. A break below 1.0850 brings 2015 lows back into focus, with a target towards 1.0600 area.

GBPUSD: Friday’s highs towards 1.2559 offer resistance to move higher, a break above their targets the 50 day moving average at 1.2760 with sellers likely to emerge around 1.2858. Above there we are back into the initial post Brexit range. Support below 1.2100 should provide some buying opportunity for GBP, again we would expect a USD rally to be slight more controlled and these lows should hold pending favorable liquidity.