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The US election: tips to trade on
2022-03-15 • Updated
The highly-anticipated event – the US election is today! We already know that the outcome will affect the market, but what exactly do you need to do during that day? Let us introduce you to the trading tips for the upcoming election! Below, you can see several simple steps to consider before trading in the highly volatile environment on November 3.
1. Know the basic rule of trading on the US election
After years of analyzing the US election, experts found an interesting correlation between the victory of a particular party and the behavior of the USD. Historically, the USD tends to rise after the Republican Party wins, and fall in case of the Democratic candidate’s victory. Let’s look at the chart of EUR/USD below. On November 9, 2016, there was a shocking spike by 294 pips after the announcement of Donald Trump’s victory. However, the balance was restored shortly after and the pair fell even lower.
Tip: If Joe Biden wins, the USD will fall. Vice versa, the victory of Donald Trump is considered to be USD-positive. But, as we can see, the unexpected changes in results may create swings in the market. FBS recommends you be careful and don't forget to place stop losses for minimizing your risks.
2. Consider the potential movers
It's important to know the political agenda if you trade on the US election. Remember Donald Trump's promises to build a wall on the US-Mexico border? Now, look at the chart below.
This is the reaction of USD/MXN after Donald Trump’s victory back in 2016. On the other hand, Joe Biden is known as an immigrant-friendly candidate. That means, if he gets elected, the MXN will get stronger. By the way, the pair is currently moving towards the strong support at 20.84. If this level is broken, the next one will lie at 20.3.
The same rule applies to the Chinese yuan. The Chinese currency had hard times under the presidency of Donald Trump. The US-China trade deal has still been not completed and Donald Trump has repeatedly threatened China with more sanctions. So, the Chinese yuan may strengthen as well after Joe Biden's victory. The other positive factor for the Chinese yuan is the bigger supportive package approved after Joe Biden is elected. This news will push the risky assets up.
USD/CNH is currently trading within the descending trading channel. The first support for the pair lies at 6.68. If it is broken, the yuan will retest the support at 6.6280.
Tip: If Joe Biden wins, the CNH and the MXN will go up. The Democrats’ victory will not be positive for all risky assets, though. The Russian ruble will likely weaken, as the Democratic candidate does not look towards developing positive relations with Russia, according to his comments.
3. Be careful with complicated assets
Some say, the stock market will rise after Joe Biden’s victory, others claim that stocks will go up in any scenario. The same thoughts go to gold. If you trade S&P500, NASDAQ, or the yellow metal – be extremely cautious and follow the news flow. Don’t be fooled by early results and watch the technical picture – if the signs of a reversal appear, close your position.
For now, S&P500 is rising towards the resistance at 3 400. The first support is located at 3 250.
4. Don’t forget about timing
Analysts expect a clearer picture of the election outcome at around 5:00-6:00 MT time when Arizona and Wisconsin polls close.
Additionally, swings in the market may appear in the following hours:
02:00 MT time – Florida polls close
02:30 MT time – North Carolina polls close
03:00 MT time - Michigan and Pennsylvania polls close.
5. Follow the fresh market coverage
FBS is conducting a live stream on Youtube and will post updates of the market situation on Telegram. Don't forget to check them!
We are making history today. Join the markets and be a part of traders who follow the big event in the United States!
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