US election: Impact on EUR/USD forecast and trading strategies
This guide will explore how the results, both actual and anticipated, of the US Presidential Election could impact the EUR/USD forecast and offer insights on how traders can leverage the election dynamics to enhance their trading strategies before, during, and after the November 5 vote.
- US election: 3 Scenarios that could influence EUR/USD forecast
- Scenario 1: Trump clean sweep victory
- Scenario 2: Trump wins but Democrats control Senate
- Scenario 3: Harris wins Presidency
- How to trade EUR/USD before the US election
- How to trade EUR/USD during and after the US election
- EUR/USD technical analysis
Before discussing how to trade the EUR/USD ahead of, during and after the US election, and also taking a look at the chart of the popular trading pair, let’s first explore the three scenarios that could play out in the US election and how the EUR/USD might respond.
US election: 3 Scenarios that could influence EUR/USD forecast
Scenario 1: Trump clean sweep victory
Under this scenario, Donald Trump wins the election and Republicans win control in Congress. This is potentially the most bearish scenario for the EUR/USD forecast. Trump has promised tax cuts and immigration controls, which could be delivered as soon as possible. Tax cuts are both inflationary and supportive for the economic growth. Immigration controls means labour scarcity, which could lead to higher wages. Trump may also implement trade tariffs, including on Eurozone. Not only will tariffs be bad news for Eurozone exports (and therefore bad for the euro), but they can push up domestic inflationary pressures in the US as import costs rise for businesses. In short, inflation could be higher in a Republican clean sweep amid looser fiscal policy. Bond yields may increase and put upward pressure on US dollar. The impact of this scenario on the EUR/USD holds true for both the actual results and the expectations thereof, should opinion polls take a dramatic turn ahead of the voting day.
Scenario 2: Trump wins but Democrats control Senate
Let’s say that a split congress is comprised of Republicans-controlled House but Democrat-controlled Senate under Presidency of Donald Trump. In this scenario, Trump and the Republican’s hands will be tied. The Democrats will probably force Trump to make compromises on tax cuts and immigration, while trade tariffs may not be as forceful as they would under a Republican-controlled senate. Still, Tump’s foreign policy and planned tax cuts could stoke inflation fears, and this should be positive for the dollar, all else being equal. The EUR/USD may still decline by a couple of hundred pips if this outcome is not priced in by markets ahead of the election.
Scenario 3: Harris wins Presidency
In this scenario, Kamala Harris would win the Presidency, but Congress is split with the Democrats controlling the Senate, and Republicans the House. In fact, judging by opinions polls that were available at the time of writing this guide, in mid-September, Kamala Harris looked slightly favourite to win the Presidential Race. A clean sweep was not the base case, however, as Republicans were seen retaining their House majority in November. The US dollar was already in a bearish trend having fallen noticeably during August. Perhaps investors were pencilling in a Democratic win, although the fact the greenback was declining had more to do with falling inflation and rising unemployment rate, and the Fed’s indications of a forthcoming rate-cutting cycle. Still, a Kamala Harris win will mean less tax cuts and more rises from 2026. The fiscal restraint could hold back the economy, and potentially dampen inflation than would be the case under Trump. Meanwhile, a more certain trade backdrop should alleviate pressure on currencies where Trump had plans to introduce more tariffs on, including the euro. This outcome should therefore be positive for the EUR/USD and could keep the bullish trend that had started since April intact for the rest of the year, especially if the Fed continues to feel content with its battle against inflation.
How to trade EUR/USD before the US election
The impact of the US election outcome on the EUR/USD, the US dollar and more generally financial markets across the board will be determined by the extent to which the market is surprised. That is the most important point to remember. Financial markets tend to discount future events ahead of time. If the opinion polls are very close near the time of the November 5 election, implying uncertainty, then we should expect to see a sharp move in the EUR/USD as the results come out. However, if by the time of election, we see a clear lead for one of the presidential candidates then the market’s immediate response is likely to be more muted, unless those opinion polls turn out to be completely wrong! Refer to the below scenarios for greater detail in terms of what a clear lead or a win for one of the candidates may mean for the EUR/USD forecast.
With that said, the EUR/USD is likely to gravitate towards or away from the “Tump Trade” as opinion polls change, and we get closer to the time of election (obviously not ignoring the impact of all other – perhaps more important – macro events in the interim). For traders, this obviously doesn’t mean they can’t or shouldn’t trade the EUR/USD ahead of the election, regardless of where they think the pair is likely to head post-election. But perhaps aligning those trades in the direction of the opinion polls could yield even greater results as more macro influences are taken into account.
When this guide was written, around the middle of September, the US dollar was weakening. While this had a lot to do with the release of not-so-strong US data and the Fed’s strong indications that it was about to start front-loading rate cuts, the US election was also likely influencing the dollar’s outlook. Kamala Harris, seen as less favourable for the greenback, had gained traction in opinions polls after a live debate with Trump. If she continues to perform well, the dollar could remain weak, making it more reliant on economic data for support in the weeks ahead. A surprise surge in the polls for Trump, on the other hand, would likely be negative for the EUR/USD forecast.
How to trade EUR/USD during and after the US election
Assuming a close race between the presidential candidates, once the results of the US election start coming out, traders may want to refer to the above scenarios in deciding which direction to potentially trade the EUR/USD as it starts to become clear which candidate has likely won the election. As always, risk management should never be forgotten. With the potential for heightened volatility on November 5/6th, traders may wish to reduce their position sizes to allow for a wider stop loss in order not to get prematurely wiped out of a trade because of market noise. It is also worth noting that chasing sharp moves can be extra risky. FX markets often tend to retrace and provide multiple chances to enter – if not exactly at your optimal entry point, at least at the next best level.
EUR/USD technical analysis
Source: TradingView.com
With the markets assumed to be efficient at pricing in macro events, the current trend on the EUR/USD’s chart is bullish. If you dare ignore everything else, the chart suggests that the markets are expecting Harris to win the election. The breakout from the multi-month triangle pattern is a bullish technical scenario, suggesting that a run to at least revisit the July high of 1.1275 could be on the cards, if not higher. Further upside major targets include the psychologically important 1.1500 handle, followed by 1.1750, marking the 78.6% Fibonacci retracement level against the 2021 high (1.2350). On the downside, 1.1000 is now the most important level to watch followed by the point of origin of the bullish breakout at 1.0900. If the EUR/USD were to break back below 1.0900, this would represent a major bearish scenario for the EUR/USD forecast ahead of the US Presidential Election.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
How to trade with City Index
You can trade with City Index by following these four easy steps:
-
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024