Monday, November 7, 2016

The effect of the US election on the markets, a big bet.

A few days ago I received an alert from my broker about possible 'trading opportunities' during and after the election, no matter who wins. The ones on their list I should look out for were: Dow Jones, S&P 500, Gold, the German DAX, the VXX and the EUR/USD. According to them, the markets are going to be very volatile in the upcoming days/weeks, if not months. This got me thinking about the money-making opportunities before, during and after the elections. I'm usually a very cautious trader, waiting for the 'perfect' moment to enter and exit a trade. This is a unique scenario:

My assumption is that if Donald Trump wins it will send the markets into a tailspin. Chaos, just like we saw right after the Brexit. An 'oh shit what have we done' moment a few days after. What would this mean in a US scenario? The US dollar would lose its value rapidly, just like the British Pound (GBP/USD). Investors in the US and from around the world would trade in their dollars and invest elsewhere. Would it eventually be able to recover after everyone (the global markets) would get used to the idea of president Trump? Who knows, but I'm thinking not. It will have such a great impact on the global markets, especially the financial markets, that just want stability and (steady) growth that it would cause an unprecedented global recession. Gold will be up, the EUR/USD up to 1.50 levels and beyond etc. On the other hand, if Hillary Clinton wins it will also affect the markets, but mainly it would pull it back to 'steady' levels after all the speculation that Trump would the election. To me, the EUR/USD is the ultimate barometer and, to some extent, the VIX (or VXX). The big question is, how do you trade a scenario like this? At this time of writing the US election is less than two days away. Already there is a lot of volatility and speculation, but nothing really severe yet. Like I said, the EUR/USD is on the upswing, mainly due to the fact that the FBI cleared Clinton of all charges, this is how to chart looks, without any techical indicators this time (something that you are probably not used from me, but in this case there are so many fundamentals at play that I deem technicals superfluous at the time).

The EUR/USD, a global barometer of what the market thinks will happen. Coming from sub 1.09 levels a few days ago, news breaks about Clinton and it's back up heading towards 1.11. Nothing major, still for me an indicator that Clinton will take the election. If the markets truly believe that Trump had a chance, the USD would currently already have lost a lot of value, and by a lot I mean that the EUR/USD would be trading around 1.35 - 1.45 levels right now. These are global traders that are pushing and pulling the currency around, not just American traders. It says a lot about what the global markets think what the outcome of this never seen before US election will be, and the media circus surrounding it. It's a big bet. 50/50 chance, but not really. Trump would cause chaos and instability in the markets and nobody is waiting for that. The lesser of two evils has to prevail in order to maintain economic stability in the world. It seems to me that the markets already have made up their minds, you don't need a poll for that.

Very well, let's do a trade Mr. Broker, just as you suggested. This trading week in fact, forget about speculation in the future beyond that, EUR/USD down, Dow/S&P up, VXX down, DAX up, Gold down. Plenty of charts for everyone to check out to find a good entry position today and tomorrow.


All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.