Dollar Rally Likely to Extend After Election
James Chen, CMT November 7, 2016 2:17 PM
It remains clear that a Clinton victory tomorrow will remove one of the major risk factors for the Fed in terms of raising interest rates. Regardless of political leanings, a Trump victory would most likely contribute to substantially heightened market volatility, potentially playing a key role in discouraging a December rate hike by the Fed. A Clinton win, in contrast, should dampen market volatility, and would therefore help encourage the Fed to pursue tighter monetary policy.
At the same time, despite missing headline market expectations last week, October’s US jobs data held some very significant clues that inflation was on an upswing and the US employment landscape is both solid and improving. First, the non-farm payrolls reading for the prior month of September was revised sharply up to 191,000 from its original disappointment of 156,000. But even more importantly, October’s average hourly earnings, a key measure of US wage growth and inflation, was surprisingly better than expected at +0.4% against prior expectations of +0.3% and up from September’s +0.2%. Overall, wages posted a 2.8% annualized increase, the largest rise in over seven years.
As inflation and employment are the primary drivers of Fed policy decisions, this positive data in combination with the lower likelihood of initial market volatility under a Clinton Administration, should place even more pressure on the Fed to raise interest rates in the near-term. If this indeed becomes the case, the dollar could quickly recover from its recent election-driven slump and embark on a substantial rally.
USD/JPY has recently shown some indication that it has formed a base around the major 100.00 psychological support area, as it has risen well off those lows over the past several weeks. With extended dollar strength and further weakening of the safe-haven Japanese yen after Tuesday’s election and ahead of the next Fed meeting, USD/JPY could break out above strong resistance around the 105.50 level, in which case the next major upside target is around the key 108.00 resistance level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.