More than 24 hours after voters in the United States finished casting their ballots, we are still yet to have a winner. However, despite the lack of confirmation, it appears that Joe Biden will be the 46th President of the USA. With five states yet to declare, Biden is still not up to the 270 Electoral College votes needed to secure victory. However, he is all but there now and major markets are moving on that view too.
In the early hours of Wednesday morning, Donald Trump was claiming victory but at the same time talking of having the election stolen from him. His team are still out in force talking of legal challenges. His claim is that the more than 100m postal votes cast leave the election open to widespread fraud. He wants to take this all the way to the Supreme Court. Even today, Trump has tweeted to “STOP THE COUNT” as the postal votes continue to show him sliding to defeat.
Perhaps next week, there could be some movement on legal challenges, but for now, it looks fairly safe to assume (with the count expectations of remaining states) that Joe Biden will be president.
For while, yesterday markets for a reacted and moved to safety. USD rallied and Wall Street futures fell. However, as it has become clear that Biden is firmly on his way to victory, the moves are more risk positive and the dollar seems to be the main casualty:
- EUR/USD has rallied +200 pips from the key low around 1.1600. The rebound is back now mid range between 1.1600/1.2000. There is resistance at 1.1880 in the way of a retest of the range highs.
- USD/JPY has fallen sharply from 105.35 to way below 104.00
- We also see the commodity currencies moving sharply higher (AUD, NZD and CAD).
This dollar sell-off is also playing out through the precious metals, providing support:
- Gold making strong gains. A move above $1933 is bullish today, if the market can close above, it would pressure towards close above $1933 would be a key move that opens $1973 and perhaps test $1992 again.
- Silver also sharply higher. A close above resistance at $25.27/$25.55 would be the next breakout move.
Crucially though, the key bullish moves are coming with the indices:
- The S&P 500 is up 7% in the past four sessions. Strong technical signals bode well, but there is resistance overhead. The index is just under 2% from its all time highs. This is a massive risk positive reaction higher.
- In Europe, the DAX has also rallied hard and is now into a key pivot area. For several months the DAX has traded around a pivot at 12,600. A sharp sell-off of late October has completely flipped around. However, is this a retracement into resistance, or a bull run that lasts. We look for a close above 12,720 to show the bulls decisively back in control.
One key question: Will this move last?
There is a clear response of RISK-ON across markets. Once the dust settles, we believe that USD is set for a period of weakness and underperformance. The question is whether the risk positive outlook lasts. With COVID-19 second waves inducing lockdowns and threatening renewed economic slowdown, we still believe that the USD will find some safe haven appeal. This may limit the EUR/USD rally under $1.2000, for example.
Also, will the wave of positivity for Biden last? The anticipated “Blue Sweep” did not come, the Republicans still hold the Senate. There are two ways of looking at this:
- Biden has his hands tied on fiscal spending as the Senate would not agree – this is risk negative
- Biden struggles to enforce the regulatory restrictions (clamping down on oil majors and big tech) – this is positive for corporate America that traditionally fears a heavy handed Democrat President.
So there are positives and negatives from the lack of Blue Sweep. However, the international trade will sigh with relief, especially Europe, Canada and Mexico. The trade war with China will also reduce. So broadly we still see the balance being risk positive for markets on a Biden presidency into 2021. The key for the near term though could still be the negative impact of the pandemic.