Red Wave to Red Ripple?
Counting for the US midterm elections has begun and as the initial results filter in we are seeing the Republican party closing in on winning the House, while the Senate looks far more evenly contested and Democrats are still in the lead currently. Looking at state elections, it is worth noting that the so-called “red wave”, which many political commentators were calling ahead of the elections, has failed to materialise. While Republicans are ahead, Democrats held onto some key states including California and Pennsylvania and look to be close to winning in Georgia too. In total so far, Republicans have 24 state governor seats, losing 2, while the Democrats have 21, gaining 2.
Congress Race Heats Up
In terms of Congress, Republicans are leading in the House by around 198 – 167 with 218 needed to confirm a win. In the Senate, Democrats lead 48 – 47, needing 51 to win. The sell off in USD reflects the uncertainty gripping the market currently. Looking at equities yesterday, we saw initial gains in US indices as the Dollar came off before sellers stepped in later in the day. This is potentially due to the weaker showing from the Republican party.
Trump Support Dwindling
One key takeaway from these midterms is that support for Trump looks likely to be much lower than he anticipated, meaning that it Is not yet certain if he will announce a fresh presidential campaign. On the one hand, his party rival Ron DeSantis was seen performing much better than expected while most of the candidates endorsed by Trump failed to win, aside from JD Vance.
Market Reaction
Looking at market reaction then. With a Republican win in at least one chamber of Congress already baked in on the back of yesterday’s USD move, it would likely take a surprise victory for the GOP in both chambers to fuel a fresh wave of USD selling here. Instead, traders now look to the upcoming US CPI release tomorrow which Is likely to be the next key directional catalyst. If we see any weakness in tomorrow’s reading, USD certainly has room to drop lower. However, if CPI surprises to the upside, yesterday’s order book clear-out sets bulls up nicely for a fresh upside move nicely.
Technical Views
DXY
Yesterday’s drop lower saw DXY trading down to test the key 109.18 support area where we have structural support and the long-term rising trend line. While this area holds, the focus is on a continuation higher in the medium term, viewing the current move lower as a corrective bull flag. However, if price breaks below this area, 104.95 is the next support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.