The consensus wisdom would lead one to think that the market would like to wait for the US election before deciding what to do with the USD. What to do when a break occurs ahead of a key event?
Conventional wisdom would suggest that the market would like to see the far side of an event risk before making its move, but occasionally, nervous markets and enough participants out there who simply can’t wait mean that a break occurs ahead of time – a break like today’s range and 200-day moving average break in EURUSD. A move like this is very tough psychologically for many market participants. On the one hand, there is the concern that it is a false break that might be taking place on relatively thin volume as big money might stay side-lined until after the event of the election, but on the other hand, if the move persists, many will begin to feel desperately left behind.
Chart: EURUSD
EURUSD has challenged below range support and the 200-day moving average here a day before the US presidential election. This could be a mere intra-day head-fake that is reversed later today or tomorrow and thus underlines the importance of the old range. If the break is for real, on the other hand, there are two previous models for what is going on here – the EURUSD “Thanksgiving Surprise” of 2006 and the pre-election behaviour in EURUSD in 2004.
John J Hardy,
SAXO BANK