The balance of power is up for grabs as US voters head to the polls for the midterm elections. For traders, however, the election outcome is an after-the-close event. The North American session will first have to navigate rising Treasury yields, mixed stock futures, US economic data and a Middle East situation that continues to swing between diplomatic optimism and military escalation.
The US dollar is mixed in the morning snapshot. The greenback is higher against the Australian dollar, Swiss franc, Japanese yen and euro, but lower against the New Zealand dollar, Canadian dollar and, marginally, the British pound.
Meanwhile, crude oil is recovering some ground after Monday’s sharp decline, while gold and silver are lower. The message across markets is mixed. There is still hope for a diplomatic breakthrough, but traders continue to face conflicting headlines and unresolved risks.
Middle East: Negotiations continue, but military action clouds the outlook
Yesterday’s hopes for progress toward a US-Iran agreement have been tempered by overnight developments. InvestingLive reported that talks involving Qatari mediators ended without a breakthrough, although contacts between Washington and Tehran continue through intermediaries.
Iran’s proposal links reopening the Strait of Hormuz to relief from the US blockade and restrictions on Iranian oil sales. The gap between continued negotiations and an agreement that can actually be implemented remains important for traders.
Adding to the uncertainty, the Associated Press reported, citing a US official, that the United States carried out strikes against Iranian targets near the Strait of Hormuz in response to surface-to-air missile threats against US forces. That leaves diplomacy and military pressure operating alongside each other.
For markets, the distinction matters. An agreement that restores shipping and reduces supply risks would give oil sellers more confidence. Further military action could quickly rebuild the geopolitical premium. The next headline still has the potential to change the near-term tone.
US election: The balance of power is the main event after the close
Control of Congress will help determine how much room President Trump has to advance his legislative agenda over the next two years.
A Republican hold of both chambers would preserve a clearer path for legislation. Democratic control of either chamber would increase the need for negotiation over spending and major policy changes. Control of the Senate also matters for appointments and confirmations.
For traders, the implications run through taxes, spending, regulation and government borrowing. The size of the majorities will matter alongside which party wins.
Results will begin taking shape after the stock market closes, and close races could leave control unresolved beyond tonight. That makes the overnight reaction and Wednesday’s opening levels important reference points.
For a preview of the key swing races, see my post: US election: The key races that could tip control of Congress .
RBA raises rates, but AUDUSD moves lower
The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, as expected. The decision was made by a 6–3 vote, with three members favoring a pause.
The inflation message was uncomfortable. The RBA revised its inflation outlook materially higher, pointing to domestic capacity pressures, elevated energy prices and the risk that higher inflation expectations become entrenched.
Governor Michele Bullock said growth needs to remain subdued and unemployment needs to rise further to bring inflation down. However, she did not commit to another hike, suggesting it was probably appropriate to wait and assess incoming data.
The AUDUSD is nevertheless down 0.26% at 0.6978 in the supplied snapshot. An expected rate hike does not automatically translate into a stronger currency. Traders also have to assess what comes next and what tighter policy means for growth.
The USD: Mixed, with gains against AUD, CHF and JPY
The dollar’s largest gain among the supplied pairs is against the Australian dollar helped by the rate hike. It is also higher against the Swiss franc and Japanese yen.
The New Zealand dollar shows the strongest percentage gain against the USD in the snapshot, followed by the Canadian dollar. Sterling is little changed.
The current levels are:
EURUSD: 1.1177, down 0.07%.
USDJPY: 158.22, up 0.18%.
GBPUSD: 1.3406, up 0.01%.
USDCHF: 0.8202, up 0.22%.
USDCAD: 1.3979, down 0.05%.
AUDUSD: 0.6978, down 0.26%.
NZDUSD: 0.5620, up 0.09%.
Currency ranges: Most pairs still have room to extend
Using the highs and lows in the currency-price snapshot and the 22-day average ranges in the supplied range monitor:
EURUSD: 1.1176 to 1.1206 — 30 pips, or 43% of its 69-pip average.
GBPUSD: 1.3397 to 1.3429 — 32 pips, or 42% of its 77-pip average.
USDJPY: 157.76 to 158.30 — 54 pips, or 108% of its 50-pip average.
USDCHF: 0.8150 to 0.8203 — 53 pips, or 84% of its 63-pip average.
USDCAD: 1.3951 to 1.3996 — 45 pips, or 104% of its 43-pip average.
AUDUSD: 0.6962 to 0.7003 — 41 pips, or 95% of its 43-pip average.
NZDUSD: 0.5603 to 0.5631 — 28 pips, or 67% of its 42-pip average.
EURUSD and GBPUSD have the most meaningful room to extend relative to their normal daily movement. Both have completed less than half their average range.
USDJPY and USDCAD have already exceeded their averages, while AUDUSD is close to a normal full-day range. That does not prevent further movement, but those pairs have already covered more ground.
The average range is a barometer, not a ceiling. A data surprise or headline can still stretch a market beyond its normal movement.
US stock futures: Nasdaq higher, Dow lower
The supplied futures figures point to a mixed opening:
Dow industrial average futures: down 350 points.
Nasdaq 100 futures: up 72 points.
S&P is trading above and below unchanged
The divergence keeps the focus on whether strength can broaden as the session develops. With election results still ahead, an early move will need follow-through before traders can have more confidence in the direction.
Treasury yields move higher
US yields are higher across the key maturities:
2-year: 4.608%, up 2.5 basis points.
5-year: 4.7268%, up 3.38 basis points.
10-year: 4.929%, up 3.5 basis points.
30-year: 5.2996%, up 3.06 basis points.
Higher yields provide a competing influence for stocks and support for the dollar, although the currency reaction remains mixed this morning.
European stocks trade lower
The supplied European snapshot shows broad declines:
Germany’s DAX: 25,872.08, down 109.02 points or 0.42%.
France’s CAC: 8,042.66, down 5.04 points or 0.06%.
UK’s FTSE 100: 10,698.71, down 62.63 points or 0.58%.
Spain’s IBEX: 18,849.30, down 108.50 points or 0.57%.
Italy’s FTSE MIB: 49,851.93, down 96.02 points or 0.19%.
Commodities: Oil rebounds, precious metals retreat
WTI crude oil is trading at $97.18, up $0.72 or 0.75%. The rebound comes as overnight military developments complicate the diplomatic optimism behind Monday’s decline.
Spot gold is at $3,925.85, down $20.885 or 0.53%. Higher Treasury yields increase the opportunity cost of holding a non-interest-bearing asset, providing a headwind for gold.
Silver is down 2.24% at $49.5093, while copper is down 2.73% at $6.3880. Bitcoin is firmer at $77,335, up $660 or 0.86%.
North American calendar: JOLTS and factory orders at 10 AM ET
The main scheduled releases in the supplied calendar are:
10:00 AM ET – September factory orders – Forecast: +1.2% – Previous: +0.1%.
10:00 AM ET – September JOLTS job openings – Forecast: 7.100 million – Previous: 7.079 million.
The calendar also includes September durable-goods and factory-order details.
JOLTS gives traders another barometer of labor demand. A stronger reading would suggest employers still have an appetite to hire, while a weaker number would point toward further cooling. The market reaction will depend on the size of the surprise and what the details say about labor-market conditions.
In the morning video above, I take a look at the three major currency pairs—EURUSD, USDJPY and GBPUSD—from a technical perspective. For each pair, I outline the bias, the risk-defining levels and the targets that would give either the buyers or sellers more control.
This article was written by Greg Michalowski at investinglive.com.
