The 1.3000 magnet in EURUSD continues to hold its power as yesterday’s rally from short term support suggests that the market wants to wait until after Election Day to cast its vote on a larger directional move.
The ranging behaviour in EURUSD continues as the market appears to want to see the other side of the election before making up its mind about which way it wants to break. There are many who have said that this large US storm could be critical in its impact on the election (minimal market impact from the terrible storm Sandy itself in my view: the GDP implications are negative at first because of less activity, but then there is a boost in activity as rebuilding begins). Some have said that it gives Obama a chance to appear presidential and could provide a key boost and that even New Jersey governor Christie’s approval of Obama’s leadership might have fatefully tilted the election results.
Meanwhile, Romney has also suspended his campaign as a face saving necessity as well. On the other hand, some have pointed out that just a small percentage of Philly voters (large city voters are the most likely to be democratic) not heading for the polls next Tuesday due to the disruption from the storm could tilt the Pennsylvania result in Romney’s favour, and this was considered a state that was more likely to lean to Obama.
We won’t know until the election results are in – let’s just hope we don’t get a Bush-Gore 2000 election scenario where uncertainty rolls on for weeks. Barring that, we should have a clear idea of who is the victor after another five trading days, so the market will be making its statement very soon. I still vote for a downside break, but there is a non-trivial risk that we first get some wild rally first that proves a bull trap.
Chart: EURUSD
EURUSD tried lower in recent days, forming a short-term flatline support just below 1.2900 that refused to fall and which is now seeing the middle-of-the-range 1.3000 magnet pulling on the action once again. The upside break is still far away (above 1.3100), but an ability to rally and maintain above 1.3000 for more than a day would make a bit of a point for the bullish argument. Meanwhile, to the downside, the rising line of consolidation, recent flatline support and the 200-day moving average are all waiting if the pair can’t maintain altitude.
John J Hardy,
SAXO BANK