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Posted on Nov 02, 2020 at 12:19 PM
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FOREX TRADING & THE 2020 US ELECTION: A BIG DEAL?

Are you wondering why the US presidential election is such a big deal to Forex traders all over the world and why you should probably care about it too? Let's take a quick dive into the nitty-gritty in this article so that you can stay well informed and trade wisely in these times!

The U.S. is the world's largest economy, with a gross domestic product (GDP) equal to approximately US$18 trillion annually, or about 16% of the global GDP. It's also a military superpower, with one of the largest military structures around the world.

Considering the country's economic and military significance, the U.S. presidential election every four years is seen as one of the most important recurring political events globally. As such, a survey of the conditions in which the U.S. electorate, the U.S. and global economies find themselves ahead of the election can be helpful in understanding Forex market tendencies and the challenges that lay ahead for the Forex Traders.

Where We Are From, Where We Are Going.

There is little doubt, however, that financial markets nonetheless enjoyed steady gains from 2016 through 2020, regardless of what may have been happening with underlying U.S. and global economic activity. No thanks to the Covid-19 pandemic.

 Major equities Indices—the Dow Jones Industrial Average#INDU, the S&P 500#SPX and the NASDAQ#NDX—have all tested record highs and have not succumbed to the volatility that might seemingly be characteristic of nervousness and uncertainties among stock market investors.

Still, a general improvement (in the States, at least) seems to be confirmed by recent readings of the misery index, a measure including unemployment and inflation. The index, invented by economist Arthur Okun to determine the mood among the population, has dropped to less than half of what it was four years ago (as of August 2016). Inflation and unemployment, meanwhile, have also fallen slightly around the globe over the past four years.

The Issues: What's At Stake?

Markets have behaved calmly in the run-up to the 2020 election, consolidating steadily (see D1-Daily Time-Frames on EUR/USD, GBP/USD & USD/CAD) and there appears to be little incentive for either of the current top candidates to promote abrupt changes in policy. However, investor jitters before or after the election may still shift the market trend.

Just as the law of gravity says that what goes up must come down, however, the current long-running bear market may quickly be upset if a change in power gives investors a reason to start a buy-back. Curiously, historical data shows that the presidential election that brought Trump to power have tended to encourage market gains in the last presidential term.

See the 4-Hour Time-Frames (H4) charts below how the Forex majors performed in the last 2016 US Presidential Election:

 EUR-USD-ELection Article

 GBP-USD-ELection Article

USD-CAD-ELection Article

If we think “History Will Repeat Itself”, then we know exactly how to trade the Forex Markets this week should the incumbent triumphs at the election- A strong Bearish tone leading to more SELLS may occur.

Summary

The current state of the U.S. and global economies (August 2016), and policy preferences of the presidential contenders, will have a significant influence on the decisions that will be made during the next administration and what they will mean for markets.

However, Forex Traders should be prepared for the possibility of a short- or longer-term shift in the current market sentiment after the vote should the markets suddenly show any unforeseen uncertainties about the candidates' positions.

Now over to you! How do you intend to trade during the election and what pairs will you be considering?

Let's hear your thought in the comment section below!

 


 

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