November 8, 2022

Caution: US Midterm Elections Tonight

Michael J. Donoghue
Caution: US Midterm Elections Tonight

For those trading stocks or the US Dollar this week, we would like to encourage caution: US midterm elections tonight may become fundamental catalysts, creating volatility across markets. With hundreds of millions of potential voters going to the polls across the United States today to decide who they want to represent them in government, these decisions will ostensibly have significant impacts on financial market activity, especially with federal elections. With Democrats projected to lose their current majority in the House of Representatives and a slew of close races to determine a new Senate majority locked in a dead heat, the policy-making landscape in the US could be quite different in January 2023, when those newly elected take office.

What Impacts Might This Have?

If Democrats manage to beat expectations and keep both chambers of Congress, even adding to their current majorities, this will likely pave the way for more federal spending packages over the next two years, potentially adding to both GDP growth and inflation. On the other hand, if Republicans take one or both chambers, this could effectively nullify President Biden’s future agenda by preventing new spending packages from passing over the next two years, reducing potential GDP growth and inflation.

Thus, my personal guess is that a) a sweeping Democrat victory would create shorter-term stock rallies and longer-term USD bullishness (due to increased stimulus), and b) one or more chambers being won by Republicans would cause longer-term stock support and slight bearishness/neutrality for USD (due to increased austerity). However, this is only speculation; we will have to wait and see how the markets respond. This reaction may take some time to culminate, as some states take longer than others to tally votes and report election victories, meaning some results may not be known for days.

Two Potential Pairs to Watch

If you are bullish on USD and looking for potential trade setups as midterm results emerge, the following two pairs are currently rated favorably by the A1 EdgeFinder for those interested in going long on the Greenback. They are listed below with their respective ratings, signals/biases, and corresponding charts.

1) USD/JPY (Earns a 5, or ‘Buy’ Signal)

Caution: US Midterm Elections Tonight
Caution: US Midterm Elections Tonight

2) USD/CHF (Earns a 3, or ‘Buy’ Signal)

Caution: US Midterm Elections Tonight
Caution: US Midterm Elections Tonight

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