U.S. election fears have had a large negative impact on markets around the world. This was very important on November 4th, the Friday before the Presidential election. But
regardless of what happens on November 8th, we should expect this volatility factor to disappear. At least in some aspects of the world’s economy. As you will see, the
Forex market is not impacted in the same predictable manner that the stock market is.
From a trading perspective, it’s important to know what this means. For one, the ups and downs that have been prevalent in many indices, especially U.S. based indices, should
smooth out. For example, we won’t see sudden reversals like the slow climb that the major indices saw on Friday until about noon—when prices started to fall dramatically, ending in negative territory for the day. Things like this will still happen, but not on the daily basis that they have been. Investors do not
want to keep too much money in stocks right now because they are unsure of which companies will benefit, especially with the uncertainty of whom will be the next President.
In the past, Republicans have been viewed as good for business and Democrats as bad. This has traditionally occurred because of tax policies, but neither candidate has a business-friendly tax plan in store. This is not necessarily something that will occur, though. For taxes to be pushed through the House of Representatives, Congress would need to approve the proposed ideas, and regardless of who gets elected, this will have little to do with them, and much more to do with what the House comes up with, and if the Senate will approve it. In other words, while both candidates have tax plans that they like above others, tax proposals would have little to do with who is elected to be President, and far more to do with who is elected to the House, as this is where all financial laws must originate.
We should expect to see volatility for several days after the election, and day traders—specifically traders that focus on indices and major stocks—will be able to benefit from this because the volatility will likely take a more predictable and accessible tone to it. By watching patterns, ranges, and channels, traders should be able to use the election as a great money making opportunity, especially as the markets will likely fluctuate in their usual fashion based upon who is elected to the Presidency. If you want to get a strong feel for where markets are headed long term, pay attention to how the House shifts its composition, if it does at all. Currently, the House has 247 Republican members, and 188 Democrats. 34 of these seats are up for re-election this year.
It’s also worth noting that the U.S. dollar will also be impacted with the election cycle. The dollar often moves against the major indices, but in special cases like major news events, this doesn’t always hold true. In fact, it’s far more important to consider what is going on in Europe when looking at the dollar than what the stock market is doing. These tricks and shortcuts that are often used when comparing the USD to the U.S. stock market are only
generalities. In specific and rare instances like this, this rule does not always hold true. The USD and its relationship to any other currency will need to be
evaluated on a case by case basis, using technical data to help you determine which trades, if any are correct in the post-election atmosphere. Predicting these with accuracy
may be a bit harder to do, based upon the pair you are looking at.