Preparing for a Wild November
Six weeks from now, the main event of the year finally arrives – the U.S. Presidential elections. As it is often the case, the race for the White House is tight, as the U.S. continues to be divided into two main views – Republicans and Democrats.
The President in office, Donald Trump, won a controversial battle four years ago. Accused of being supported by Russian hackers in his campaign, Trump won in the last minute, with the race being one of the tightest in American history.
This time, the Americans must choose between Trump and Biden. If they have something in common, that is old age. Both candidates are in their seventies, with Biden turning over eighty during the presidency, should he win the November race. Age has been one of the critiques bought by many analysts, as the first job in America is an energy-consuming one, demanding a highly active President.
U.S. Elections and the Next Fed Meeting
Coincidence or not, the U.S. elections are scheduled on November 3rd. One day later, the Fed meets to decide on the monetary policy, with the statement coming out the following day.
Judging by the Fed’s communique and decision from two days ago, more quantitative easing should come as soon as the next meeting, right after Election Day.
In light of such events, the next six weeks will likely be dominated by tight ranges on the currency and stock markets. On the U.S. dollar front, one can already notice a directionless market – the EURUSD trades between 1.18 and 1.20 for more than two months now, the GBPUSD hovers above and below the 1.30, and the USDCHF does the same but around the 0.90 level.
It would not be the first time when the markets adopt a wait-and-see approach. The danger in such a situation is to forget about the events ahead and to overtrade a position expecting a significant market move. The problem is that the markets are unlikely to move until Election Day, and the trader enters the highly volatile event with big exposure.
The wait-and-see approach is seen in international politics too. Since Trump’s election four years ago, American foreign affairs have changed dramatically. Priorities shifted as America changed its approach even towards its traditional allies.
Expect a tight race ahead. The next six weeks should be marked by sharp rallies, but rallies destined to reverse up until the Election Day.
After that, no more bets.