Independant Analyst: Lena Manousarides 4th November

publication date: Nov 4, 2008

US Elections: Will the Dollar Be the Winner?

The big day of the US elections is finally here. The dollar rose during the Early European after EUR/USD plummeted down to 1.2530; however the pair reversed its move and at the time of writing was hovering close to 1.28. It is very obvious that traders do not know which way to go and uncertainty is the theme for now.
The risk appetite came back in the markets this morning, after NIKEI gained more than 500 points and European markets are trading positive too. It all looks like that DOW JONES will follow in the same path; however let’s wait to see what happens after New York open.
Today the economic calendar is almost empty, with Construction PMI out of UK this morning, which printed a really negative number and also PPI out of Europe which also gave a lower than previous month result, giving more fuel that ECB will cut rates by more than 25 points on Thursday. Later on we have factory orders out of US and the presidential elections which will keep us occupied till the verdict becomes clear.
EUR/USD found a temporary support at 1.2530 and from then on gained almost 300 points. Next level to watch will be 1.2850-80 which holds good resistance , however if that level gives way we might see further gains towards 1.2950 once again. The bigger range for now is 1.25-1.30 and only a clear break of those levels will lead to 1.23 or 1.32 respectively.
Market participants have a lot to look forward to this week with ECB and BOE rate decision and NFP out of US the most crucial events. However let’s not underestimate the US elections as the result could very well lead to either a dollar rally or a complete dollar slump! In the previous elections the statistics showed that the greenback rose against its other counterparts as traders were trying to make sense of what the new president means for the economy. A lot of media polls are leaning towards the democrats party as the winner, and that can mean that the dollar could eventually appreciate in the coming months as it was widely known that Bush administration wasn’t a fan of the greenback at best of times.
The recent slide in the consumer confidence led many to think that there will be a lot of work till the lost confidence comes back in the American people and therefore until we see some signs of recovery in the economic data, we can say that another market collapse could very well be in the cards. The key to that will be the nonfarm payroll data this Friday and the forecasts are giving us a really bad number of -200.000 jobs. This will mean that the country is in recession and the first job of the new political party after they get elected is to try and fight further economic deterioration.
So, let’s wait and see what the day brings and how the markets will interpret the US elections result and the question that everyone is asking is if the dollar will continue its recent rally or put a temporary break until further events unfold…