FX, equities and to some extend commodities have been trading on the re-opening global economy (as they should) and have exploded.
However, the fact that late last week the US equity markets began to sell off and the USD started to climb that ‘8-week pre-election pattern’ caught our attention for good reason.
If we look back at US elections, even including the unexpected Trump election in 2016, equities, on average, ease and the USD appreciates. There is no reason to think 2020 will be different, even with a controversial President and a once-in-a-generation pandemic.
Many would agree that a pullback in equities was coming ahead of both fundamentals and technicals. However, there is a clear sign that the US Presidential election is beginning to creep into trading. Something that will build further leading into the first Presidential debate on September 29.
From there, dates to watch include 15 and 22 October which are the second and third debates and then the day that matters is 3 November.
Going forward, the dollar basket is the market to watch and considering it’s coming from a very low base having been sold off in droves in the past 4 months, a steeper than normal 8-week Presidential election trade could eventuate, especially as the polls narrow and polls from swing states get released.
We are moving into an interesting short-term period, one that is likely to present interesting trade opportunities, but we will also see strong bouts of volatility, so be on guard for gapping and trade spikes.