Over the next 8 weeks, make no mistake, all trades will be led by the US election.
Even during this once in a generation pandemic and with a bombastic US President, traders will be starting to set themselves for what is traditionally a volatile period moved by polls, rhetoric and the odd piece of policy.
We will be running the ‘election playbooks’ over markets in the lead up to November 3rd with all eyes on the DXY, as its one of the best gauges for trader thinking. History shows that on average, during the lead up to elections, the basket appreciates and equities ease. We will be watching very carefully for this possibility and it does appear to already be taking shape.
But for now, there are a few other events that we need to look at that have put a slight ‘spanner’ in this tradition pattern.
First and foremost is the fallout from ECB Chair Christine Lagarde’s almost nonchalant press conference. There was little to no news on possible new policy, forward guidance, or the review of its policy framework. She also revealed the Board had ‘little concern’ for the EUR appreciation over the past 3 months despite its pressure on the zone’s economic recovery. EUR/USD jumped from $1.1840 to $1.1917 on this comment. It later fell back to $1.1810, suggesting there is still a real drive to the USD.
Once again, the Senate failed to pass its latest fiscal stimulus bill. The slimmer $500 billion put forward by the Republicans is a long way short of the Democrats $2.2 trillion bill. The impasse is becoming a real issue and there are signs a new relief package may not be done before the election – disappointing. What was also slightly disappointing is that initial jobless claims rose by more than expected to 884,000 with continuing claims up to 13.4 million. This all point to a slightly disappointing month of releases which feed into the likelihood funds will follow to safe-haven currencies.