Trading Currencies: Tweeting the Night Away

The Tweets that Broke the Market

Never forget how powerful 280 characters can be on FX especially when those 280 characters are in the hands of the US President.

For the past week, even when the President was diagnosed with COVID-19, markets both in equities and FX were moving in a ‘risk-on’ fashion on the belief that House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin would finally come to an agreement and pass the next COVID-19 stimulus bill.

But in the space of a 10-minute tweet spree from the President announcing [that he] “instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business”, that idea was dashed.

Currencies Against the USD Went on a Slide

Interestingly enough, this goes against what the Federal Reserve believes. Jay Powell has again been testifying this week that fiscal policy should and can be used to get the US economy through the COVID-19 crisis. A point can almost be summarised as: ‘there is never too much stimulus’.

Trump’s decision to scrap the next tranche of stimulus has seen the USD ratch higher, seeing the EUR/USD dropped from $1.1790 to 1.1735, GBP/USD has now fallen a full cent to 1 cent at 1.2875. AUD/USD was already under pressure from the RBA’s tone, then Trump’s tweet storm sent it to 0.7100. Receive latest price updates on 60 hottest FX pairs

Gold Also Crashes on the News

The same happened to gold price – the bright metal plummeted 2% from a 2-week high and broke well below the $1,900 mark to around $1,877 on the news as there was a wave of selling pressure kicking in.

From gold’s trend direction, it’s clear that the market was hoping strongly for a fiscal deal. As Daniel Ghali, commodity strategist at TD Securities, mentioned, “gold has actually conditioned from a safe haven asset into an inflation hedge asset”.

He went on to explain, “as an inflation hedge asset, the bottleneck here is actually inflation expectation. The market would need to see them rise further to pull real rates lower and gold higher.”

Gold often benefits from stimulus plans as it is widely viewed as a hedge against inflation and currency depreciation.

Future of the USD Trend

Why this news matters so much is that with the stimulus bill off the table, the election becomes the only game in town, and history is now your fundamental and technical gauge.

This chart shows all US elections back to 1992, what it highlights is that the USD has appreciated in the 70 days leading up to the November election when the incumbent administration has lost.

Chart, histogram

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Right now, the USD has just traded in green (mustard line) again after falling in line with the stimulus bill. With 26 days to go, the second and third presidential debates would be the key market focus. Considering Trump intends to participate in the debate on Oct 15 despite his condition, it would be interesting to see how it would go. Traders have to beware, the polls and any further signs that Trump is losing ground will likely see the USD moving higher still. Stay alert and watch the news closely

Upcoming events that may affect the trend of USD:

• Oct 15 (Thurs) 9:00-10:30pm EDT – Second presidential debate

• Oct 22 (Thurs) 8:00-9:30pm CDT – Third presidential debate

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.