U.S. Markets To Collapse Amid Trump Election Surprise
Forex News and Events
The American election reached its epilogue very early this morning, even though Trump’s victory was widely unexpected by financial markets, with polls largely anticipating a Clinton victory. It is the second time this year that pollsters got it wrong after the Brexit vote.
Financial markets hardly priced in a Trump possibility and this is why, over the late hours of the night, each announcement of a Trump advantage created major turmoil in the markets. During the ballot counts, the peso lost 5% against the greenback. Global stocks are also declining, in particular Japanese stocks which declined 5%. Gold and silver have been the biggest winners of the elections result thus far.
The Trump election will very likely have an impact on Fed monetary policy. Further downside moves in the markets are likely to happen within the next few weeks as markets start to price in Trump’s first moves.
The Fed is now front and centre until the end of the year, with markets now pricing a December rate hike likelihood of 51.2% as a collapsing stock market would likely prevent the US central bank from normalizing monetary policy. However, Trump will only start his presidency in January and the Fed will still have their hands free until then despite multiple statements from the new US president. For us it is an eventuality that Donald Trump will try to diminish the Fed control. Volatility will remain high for some time.
Market reaction: panic move is over
The market’s reaction to Trump’s victory was similar to the aftermath of the Brexit vote. Investors sold-off risky assets to buy safe haven ones. However, just like any panic reaction, markets quickly bounced back with EUR/USD returning to 1.1060 after hitting 1.13 in the early European session. Even the Mexican peso, which fell as much as 13%, started to recover. Nevertheless, we expect selling pressures on the peso to remain elevated as it is still very uncertain whether Trump will actually act on all his campaign promises, especially those regarding Mexico and the renegotiation of international treaties.
Only a couple of equity markets were extending gains this morning. This includes the Swiss and Russian equity markets. The former has been bolstered by a recovery in pharmaceutical companies which came under heavy selling pressure last week as the markets priced in a Clinton victory. Novartis (NYSE:NVS) is up 4.30%, Roche (OTC:RHHBY) surged 4.15%, while Galenica (SIX:GALN) was up 4.60%. The SPI hit 8,563.05, up 0.83% on the session. Russian equities were better bid on the prospect of an improvement in US/Russia relations under a Trump presidency. The MICEX index was up 1.62%.
EUR/USD – Volatility Spikes.
EUR/USD Volatility Spikes Chart
The Risk Today
EUR/USD has surged amid the US election weakening. However, key resistance at 1.1352 (18/08/2016 high) still stands as the pair is now retracing to yesterday’s levels. Markets is now looking for a direction. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support is given at 1.0458 (16/03/2015 low).
GBP/USD is edging towards resistance at 1.2557 (04/11/2016 high) while hourly support is given at 1.2354 (intraday low). Strong resistance stands far away at 1.2620 then 1.2873 (03/10/2016). The pair is back to yesterday’s level expected to further decline. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY‘s selling pressures have spiked before bouncing back. Hourly resistance is given at 105.53 (28/10/2016 high). Key support can be found at 100.09 (27/09/2016). Expected to be further back above 104.00 after some irrational moves due to the US election. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF has broken strong support at 0.9632 (26/08/2016 base low) before bouncing back while resistance area is given at 0.9790 (07/11/2016 high) and around the parity. The pair has already largely retraced. Time to reload bearish positions. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
Resistance And Support