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US Mid-Term Elections and Your Forex Portfolio
Written by: PaxForex analytics dept - Tuesday, 06 November 2018 0 comments
US President Trump will face his first mid-term elections of his presidency. The Republican Party currently controls the White House, the Senate and the House of Representatives. This ensures that President Trump can push his proposals though Congress with little resistance unless his own party rebels against him. In order to pass legislation, it needs to pass both chambers in Congress before the President can sign it into law. There are exceptions where the President can act without approval of Congress.
The Democrats have been waiting for this moment and pinned their hope on a “Blue Wave” in order to flip the House of Representatives and gain control. Blue is the color used for Democrats while Red is reserved for Republicans while Yellow indicates independents. Since the President needs both chambers of Congress to approve new legislation, the Democrats hope to slow down the agenda pursued by President Trump. This would transform President Trump into what is called a “lame duck” President as it is unlikely any new legislation will be approved.
There are 435 seats in the House of Representatives and the Democrats needs to gain a net of 23 seats in order to gain control of the lower house. Various polls have Democrats gaining between 20 and 40 seat, but keep in mind that the same polls saw then presidential candidate Hillary Clinton winning the race for the White House. Polls also suggest that Republicans may pick up one or two seats in the Senate and increase their dominance. Only 35 Senate seats are up for election. In addition there are 36 gubernatorial races where Democrats are favored to place their candidates in Governors Mansions around the country.
The majority of analysts believe that the Democrats winning the House of Representatives will create more political stability in the US and on the global scale. This doesn’t stop the rise in nervousness amongst Democrats as the most recent polls indicate their margin of victory is shrinking as compared to October. The US Dollar may sell-off as positive economic policies will be stalled. After today’s mid-term elections will draw to a close, regardless of the outcome, tomorrow will usher in the race for the White House in 2020. US Mid-Term Elections and your forex portfolio can generate strong returns with the following three trades!
In case the Democrats manage to wrestle control of the House of Representatives away from the Republicans, the US Dollar may drop while the Japanese Yen will rally. Safe haven assets are likely to outperform and the USDJPY already completed a breakdown below its horizontal
resistance area and is now being pressured lower by its primary descending resistance level. Price action is currently favored to undergo a triple support breakdown and descend into its horizontal support area. Forex traders are advised to sell the rallies in the USDJPY.
Forex traders who trust that the polls will be right this year have already started to sell the USDMXN. This led to a breakdown below its horizontal resistance area and an increase in bearish sentiment. It is predicted that the current downtrend in this currency pair will prevail and take price action into its next horizontal support level. An increase in volatility cannot be ruled out, but forex traders are recommended to sell the rallies in the USDMXN from current levels.
After the formation of a double top chart pattern in the USDDKK, which also completed its current horizontal resistance area, bearish sentiment rose and forced a breakdown. The sell-off, partially fueled by profit taking, is expected to accelerate until price action can challenge its next horizontal resistance level. Further analysis is required in order to determine if another breakdown may follow. Forex traders should sell the rallies from current levels and up into its horizontal resistance area.