EUR/USD, USD/JPY, USD/CAD, S&P 500: US Dollar Price Action into the Election

US Dollar Talking Points:

• The election is here and results will begin streaming in tonight, although we may not know finalized results until tomorrow or later.
• In this webinar I went over a few different points of interest into the election, while also trying to deduce market reactions based on either scenario. But, as I said up front, price action is what’s most important to me because as a trader, that’s what allows for strategy more so than expectation of what price should do because of any individual driver.
• This archived webinar is hosted every Tuesday, and you’re welcome to join the next installment: Click here for registration information.

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The US Dollar has fallen quickly over the past two days and that seems to be at odds with how the USD had performed over much of the prior month, as the currency continued to gain as odds of a Trump win continued to increase.

In the webinar, I went over two inflection points on October 9^th and then October 29^th. The former day is when odds for a Trump win started to climb on Election Speculation Site, Kalshi.com; and the latter date is when those odds started to narrow.

I looked into this yesterday and after Harris briefly showed as the favorite on the weekend, the US Dollar opened with a noticeable move of weakness. That has so far continued today as the currency has pushed back-below the 200-day moving average and since the webinar concluded, DXY has driven down to the next zone of support at the 103.32-103.46 area. As I said in the webinar, this could be noisy, however, as it could be either market participants pricing in a Harris victory or it could be squaring up from longs ahead of election results beginning to stream in.

Nonetheless, prior structure remains of importance, with next supports at 103 and 102.55, and resistance overhead at 103.82 and then the 104-104.07 zone, which bulls would need to re-claim to take control of the matter.

US Dollar Daily Price Chart

EUR/USD

EUR/USD has continued the bounce from the support looked at in the webinar two weeks ago. If we do see USD-strength, I still like trend continuation in EUR/USD.

That’s complicated by the fact that on a shorter-term basis price action has continued to show bullish structure, as updated in the webinar. But overhead are two major spots for resistance potential: The 1.0943-1.0960 zone and then the 1.1000 level.

EURUSD AD

EUR/USD Daily Price Chart

USD/JPY

There could be some legitimate fundamental drive in USD on the basis of the election. One of the large factors over the past month as Trump odds have increased have been higher long-term US rates. That could invariably help to make the prospect of carry trades as more attractive and that’s likely why there’s been a degree of correlation over the past month between election odds and USD/JPY price action.

As of this writing USD/JPY is re-testing the 200-day moving average after a hold a little higher at 151.95 over the past few days. For deeper support, I’m tracking the Fibonacci level at 150.77 and then the 150.00 handle. For resistance, 153.83 is followed by 153.85 and then the 155.00 psychological level.

USDJPY AD

USD/JPY Daily Price Chart

USD/CAD

I started looking at the bearish side of USD/CAD last Tuesday in the webinar when the pair was fast approaching a big spot of prior resistance.

On Friday the pair closed near the highs, and those were two year highs. But so far this week, as USD has pulled back, so has USD/CAD in a very big way.

The pair is now at the bottom of the support zone at 1.3846. As shared in the webinar, if not already short chasing the move could be a challenge from here just given how quickly price has moved away from that resistance. There’s lower-high potential at another prior spot of resistance just inside of the 1.3900 handle. For next support, I’m tracking a Fibonacci level at 1.3822 and then a pretty major zone around the 1.3750 psychological level.

USD/CAD Daily Price Chart

Equities

I’ll keep this brief but as I shared in the webinar, I don’t think that either scenario predicates a directly bearish drive. Both parties and both candidates seem to be supportive of continuing to push US economic growth, which should be a positive for stocks.

But with that said, rampant volatility can still show on the basis of election results, much like we saw when Trump was elected the first time in 2016. While S&P 500 Futures initially showed a brutal bearish reaction, bulls quickly came to bid support and that quickly pushed stock prices higher, which then continued to trend-up for the next year and change even as the FOMC was hiking rates.

At this point, I retain the same perspective as my Q4 forecast shared and I’d be hard pressed to take anything more than a ‘tactically bearish’ stance, which I don’t think is appropriate right now with the Fed expected to cut at their next two meetings.

In S&P 500 futures, support is in-play and this is the same zone I looked at previously, from around 5718.75-5733. That latter price traded for each of the past four days and bears haven’t been able to break much ground below. Price has already jumped up to test resistance at prior support, around the 5808 level. So this could be a sub-optimal time to look at long exposure but, instead, there’s now higher-low support potential at prior short-term resistance, around 5776.50.

If that doesn’t hold and bears do take a larger swing, whether around the election or some other driver, the contract gap from last month runs down to 5633.75 and that similarly remains as key support for pullback potential.

Indices AD

S&P 500 Futures Daily Price Chart

--- written by James Stanley, Senior Strategist