On Tuesday, 8 November 2016, the world will be closely watching the 2016 presidential elections in the United States of America.
Americans will cast their vote and choose a new leader for the next four years, following the current President Barack Obama stepping down after eight years in the office.
As traders and investors, you want to prepare yourself properly for the upcoming political event.
You probably have questions running through your mind about the markets and future American and global economic performance:
- How do the economic, fiscal and tax plans differ between Clinton and Trump?
- How will these plans impact the Forex, CFD, and other financial markets?
- What could be expected during and after elections?
This article will address all of these issues – and more.
Read our extensive centered take on the 2016 US Presidential Elections below – and feel free to express your opinion or ask questions in a comments sections below.The 2016 Elections: Clinton vs. Trump
To bypass political complexity we will focus mainly on two frontrunners, Hillary Clinton from the Democratic Party, and Donald Trump from the Republican Party.
Despite strong indications for a favorite, New York Times aggregated poles data shows Clinton (at the time of publication) with 90% likelihood of winning the elections, the race is far from over.
The difference between Clinton and Trump in terms of experience and expertise could not be larger.
Trump has little experience in the US political scene and comes from a commercial background, basically running a diversified business of property development, casinos, hotels, various investments and even reality TV shows.
In comparison, Clinton perhaps shows less commercial experience, with a career largely in public service and politics as a US Senator and as Secretary of State.
However, it should be noted that in her earlier years Clinton has held multiple positions on the corporate board of directors (such as Walmart), on the boards of nonprofit organizations and as a full partner at a law firm.
Let's discuss both candidates in detail.
Mrs. Clinton belongs to the Democratic Party.
She is a former secretary of state. Her background is vast in both political and professional experience.
Hillary has already entered the history as the first female president nominee of the Democratic party.
She is very self-aware and obviously a good psychologist – she didn't let her failure to win the presidency in 2008 drain her emotionally.
On the contrary, she used this self-awareness to reposition her campaign and approach, winning the respect necessary to receive her party's presidential nomination in 2016.
Hillary Clinton is moderately liberal when it comes to individual rights.
She stated many times in her campaign that USA needs a comprehensive immigration reform with a path to full and equal citizenship.
She is eager to end family detention, close private immigrant detention centers and help more eligible people become naturalised.
- United States Secretary of State, 2009-2013
- sworn In, United States Secretary of State, January 21, 2009
- senator, United States Senate, 2001-2009
- candidate, United States President, 2008
- first Lady, President Bill Clinton, 1993-2001
- first Lady, State of Arkansas, 1979-1981, 1983-1992
- assistant Professor, University of Arkansas Law School, 1975
- attorney, Rose Law Firm, 1976-1992
- former Board Member, Walmart.
Trump belongs to the Republican Party.
He is the president of Trump Organization and a multi billionaire – as of 2016, his net worth has been estimated at 3.7B USD.
He is slightly conservative when it comes to individual rights.
Donald Trump is a successful businessman with strong leadership skills.
Regardless of any political viewpoint, he has been successful in business and real estate for the last few decades.
He has been very hard on trade protectionism, stating on multiple occasions that he would exit the North American Free Trade Agreement (NAFTA) if it wasn't renegotiated, while labeling China a currency manipulator.
He is very strong against Trans-Pacific Partnership (TPP), a Pacific Rim trade deal.
He is very conservative when it comes to immigrants, although his wife Melania is of Slovenian (Ex Yugoslavia) descendant.
Professional experience (according to InsideGov):
- chairman, Trump Hotels and Casino Resorts, Incorporated
- founder of the Trump Organization
- chairman/President/Chief Executive Officer, The Trump Organization, from 1975 to present
Source of map: 270towin
If we take a look on the map, we can see that it is especially the rural (north) West and South that supports Trump.
These areas are poorer – hard-working but more blue collar.
The rural white Americans from the Southern states chiefly support Trump.
The far West, like California, is known to be more liberal – just like New York and the North East of the US, which usually vote Democratic.
Swing states are often found in the Midwest, such as Ohio, Pennsylvania and Iowa, and East, such as Florida.
The 2016 election: a fierce debate
(Author: Reuters/ Jim Young)
The 2016 elections have been probably more divisive than any election before, with Trump and Clinton both being involved in multiple scandals.
Presidential elections in the US are always expensive, tough and bitter, but this one seems to top them all.
Both camps and their supporters mistrust one another and the division could not have been running deeper and longer.
Trump and his supporters refer to Clinton's email scandal and the Clinton charity foundation as evidence of her corruption.
WikiLeaks has recently released hacked emails from the account of Hillary Clinton's campaign boss.
The internal emails expose various problems connected to Clinton and the current day "Washington politics" in general – BBC offers a detailed overview on what was discovered.
The FBI also announced at the end of October that they are investigating more emails which may be linked to the investigation into Hillary Clinton's use of a private email server.
As a side issue into the investigation, the FBI has found emails from a former congressman Anthony Weiner, the estranged partner to Clinton's aide Huma Abedin.
According to the reports, there could be tens of thousands of Clinton's emails on Wiener's private computer.
This new development might have a big impact on US elections as the latest poll by the Washington Post suggests that Trump is slightly ahead of Clinton.
The major poll tracker, however, shows a very small lead for Clinton, although the difference now has been greatly reduced.
On the other hand, Clinton and her supporters refer to Trump's extensive list of questionable scandals(*), comments and rhetoric...
…but it is not only the Democrats who mistrust Trump.
Many Republicans have either waited with endorsing Trump, removed endorsement or even advocated against him.
For instance, 50 Republican national security agents said that Trump would be "the most reckless president in American history."(+)
In terms of policy, some pundits say that Clinton is pro-establishment, which will largely continue the policies that Obama has maintained.
At the same time, Trump gives the impression that he wants to shake things up, negotiate better deals with trading partners and increase trade protectionism.
Obviously, both leading candidates are clearly from different backgrounds.
The economic and fiscal policies of both Clinton and Trump are summarised in the next paragraphs.
Last but not least, it is also noteworthy to mention that Clinton is the first female presidential candidate in the US…
...which means she would be the first women President in the US if elected.
Economic policies: Trump vs. Clinton
A president can help foster a vivid economic environment, which in turn will spur consumer spending, followed by inflation increase, interest rate hikes (to temper inflation).
This will make the currency more valuable and could see the currency price rise (assuming the other currencies do not outgrow the base currency in value).
When the economy is struggling, the president can increase spending (or at least not cut on spending) to shorten the recession and eventually to stimulate an economic rebound.
The US President also has a major influence on fiscal policy such as government spending, taxation and the financial budget.
Economic policy and focus of Clinton
Let's review the core points of both candidates, starting with Clinton (information available at Investopedia):
- reducing income inequality
- improving economic security for the bottom 95% to 99%
- increasing access to education
- more evenly distributing economic growth.
In the past 30 years, incomes have been growing substantially slower than productivity and Clinton wants to rebalance this disconnect between labour, corporate growth and productivity.
In previous decades, the economic performance of the US was still strong, despite the lack of income growth, primarily due to credit growth during the housing bubble.
The idea behind Clinton's plan is that income growth should fuel non-debt consumption growth and stimulate the economy.
Clinton's economic policies are focused on "strong growth, fair growth, and long-term growth".
This is what her policy aims at:
- Strong growth – invest in education and infrastructure, promote small business growth and increase in workforce participation.
- Fair growth – profit sharing is encouraged and minimum wages are increased to share the growth more evenly among corporations and workers.
- Long-term growth – encouragement to plan for long-run growth instead of short-run gains.
Economic policy and focus of Trump
Trump's economic plans (available at Investopedia) will focus on sweeping tax reforms, plans to renegotiate trade agreements, preventing new regulations and reviving the energy sector.
One of the main aspects that Trump wants to improve is the trading arrangements with its major trading partners.
He has made many references to bad trade arrangements with Mexico and China during his campaign.
Trump seems to want to solve the economic problems with his trade policies and make it easier to hire, invest and produce in America.
He seems to be offering protectionism and anti-globalist rhetoric.
Trump used China as his example: "They [China] break the rules in every way imaginable. China engages in illegal export subsidies, prohibited currency manipulation and rampant theft of intellectual property."
Trump is against the TPP (Trans-Pacific Partnership) and pledges to rewrite the Northern American Free Trade Association (NAFTA).
Mexico could feel strong pressure as they are part of NAFTA and also signers of the TPP agreement (which still needs to be rectified).
With a Trump serving as a president, both the TPP and NAFTA deals are under fire.
Furthermore, Trump wants to cut federal regulations and revive the Keystone XL oil pipeline project.
All in all, Trump is following the footsteps of the Republican party who see less regulations and lower taxes as the key to spur economic growth.
Fiscal policies: Trump vs. Clinton
Tax plans are vulnerable to political interpretations but we did our best to analyse Trump and Clinton's tax plans without bias.
Here are the highlights of Hillary Clinton's tax plan:
- It would keep federal income tax about the same for most people (especially for those earning less than $250,000 year) and the current tax plan is mainly kept with 4 main differences.
- It would raise taxes on federal income over $5 million a year from 39.6% to 43.6%.
- Households with over a $1 million yearly income would have to pay at least a 30% effective tax rate (deductions would not apply if the effective rate falls below 30%).
- Carried interest would be taxed like regular income (and not as capital gains).
- The plan would double the child's tax credit and introduce a new $1,200 tax credit for caregivers.
- Corporate taxes would change in an attempt to keep US companies from shielding their income from US taxes.
- Capital gains tax over $5 million would also increase 4% from 20% to 24%.
- The tax plan would raise debt by about $200 billion, which is about 1% of the current total debt.
- The higher taxes on the rich (mainly above $1 mln income) could discourage business spending but this would create new government revenue which would pay for subsidised college, infrastructure projects and paid family leave.
Here are the highlights of Donald Trump's tax plan:
- The plan would reduce the number of tax brackets to 3 with brackets at 12%, 25% and 33% and the wealthiest would see the most benefit in federal income tax decreases
- Deductibles would be capped for married couples at $200,000 a year
- Child care expenses would become deductible up to the average cost of childcare in someone's state
- It would increase the standard deduction from $12,600 per year (for married couples) to $30,000 a year
- But it would also remove personal exemptions, which means that for many families with single parents or more than 3 children making between $60k and $100,000 a year taxes would go up (valid for 7.8 million households)
- It would reduce corporate tax rate from 35% to 15% and repeal the estate tax
- It would seek to get back some of the profits that are offshore from US companies
- It would close the carried-interest tax loophole
- The tax plan would lower government revenue somewhere between $4.4 trillion and $7.2 trillion over the next 10 years
- The tax plan would stimulate the economy but the future tax revenue is unlikely to increase to a point that it would equal the decrease in government tax collection (which occurred with President Reagan)
- Even after growth is accounted for federal revenues would decrease between $2.6 and $3.9 trillion (or even higher in some sources), adding a substantial amount to the debt (compared to Clinton's $0.2 trillion) even if budget reductions are made.
Comparing Trump and Clinton
Generally speaking, investors and businesses favor low taxes, a stable economic and political environment, strong consumer demand and low levels of financial uncertainty.
So the main question is:
…which candidate will provide better economic prospects?
Trump's tax cuts could boost the economy in the short-term...
…but in the long run, a large financial deficit creates a higher debt versus gross domestic product (GDP) ratio.
The debt could reach or even pass a critical level where creditors lose trust in America's ability to pay its debt obligations.
This could increase the default risk and make a currency riskier if the total debt reaches or passes a critical level (often above 100-110% of debt vs GDP, although exceptions to the rule of thumb to exist such as Japan).
To compensate the increased risk, the US needs to offer high interest rates to investors as compensation for the risk, which leads to larger debt repayments.
Trump's original plan took the ratio well above the 120% but in the updated version the ratio hits 105%.
According to Trump's plans, it seems that most people will pay the same or less taxes (with some exceptions)...
...while the richest top 1 to 5% will stand to gain the most from Trump's plan, albeit at the cost of a worsening debt to GDP ratio.
The plans are probably aiming for a trickle-down effect to the rest of the economy.
But will the money indeed trickle down?
Or will investors keep it on their bank account and/or invest it in foreign countries?
Clinton's tax plans are less favorable for the top 1% but probably more favorable for the rest as she tries to stimulate long-term and strong growth.
This plan might give less of a boost in the short-term than Trump, but the long-term perspective certainly looks better:
…the deficit would hardly rise and the government would be able to spend more without creating a deficit (compared to Trump's plan).
Of course, the main concern is always whether the government will spend the money wisely, such as on education and infrastructure, or unproductively?
Overall, Clinton's plans seem to boost aggregate demand by increasing infrastructure investment, helping small business growth and improving the purchasing power of the middle class Americans.
Furthermore, Clinton's plans seem to carry less uncertainty than Trump's ideas, whose policies seem to attract scrutiny from the business world.
For instance, his comments on not paying back US debt or renegotiating US debt would basically remove the pillars of the world economy, as the US debt is considered to be safest and hence it carries such a low rate.
The US debt is, in fact, the backbone of the US Dollar, the world's reserve currency and safe haven (more on that later).
In our view, the financial markets see Trump candidacy as an uncertainty due to his views on repaying the US debt, trade protectionism and other aspects (like views on nuclear weapons).
All in all, it seems that Trump presidency would need to first prove its effectiveness to the financial markets before political and financial uncertainty would be able to settle down.
Of course, if the market loses confidence in Trump, then the political instability could create political, financial and economic volatility.
Moreover, it could start or exaggerate weakness in the US Dollar, the US stock market and the US economy.
Clinton presidency seems to indicate "business as usual" and the US economy could continue with its slow but steady improvement since the Great Recession.Democrats vs. Republicans in government spending
The Democrats are historically known for bigger government spending, whereas the Republicans are traditionally known for budget conservatism and simulating private, business spending.
Historically, however, wars and harsh economic times were the biggest causes of spikes in the debt to GDP ratio:
Once World War II finished, the debt substantially dropped until the 1980s, which saw the US debt turn back up for first time since the war:
The traditional Democratic and Republican roles have faced some changes over the last 35 years.
- President Ronald Reagan (Republican) increased spending on the military and offered tax cuts at the same time which increased the deficit.
- President Bill Clinton (Democrat) eventually ran a budget surplus towards the end of this 8 years term and actually reduced the national debt.
- President George Bush Jr. (Republican) followed the footsteps of Reagan and both the deficit and debt increased.
- President Barack Obama (Democrat) followed the previous two Republicans, although he did face a Great Recession rather than an economic boom such as under Bush Jr.
The impact of recent presidents and elections (blue arrows) can be seen in the image below.
During the second term of Bill Clinton's presidency, the USD strengthened substantially…
...but all the gains were reversed and more during Bush's two terms.
Under Obama, the USD saw lots of choppiness at first as the Fed was intervening in the markets…
...but eventually, the USD did strengthen.
This was partly due to the US economy recording faster than others and partly because of Eurozone weakness (chart shows EUR/USD) and monetary policy intervention from the ECB (European Central Bank) to weaken Euro.
Business relations of Trump and Clinton
Various institutions and companies have contributed to the main US political parties, with most funds being raised by the Democrats to date.
For anyone interested in understanding which companies were the top contributors to their respective campaigns, read open data.
Some of the bigger contributors to Clinton's campaign include George Soros, Media Groups (Bloomberg and Newsweb) most likely interested in keeping the status quo of current US Government policies.
Leading the funding for the Democrats are casino group Las Vegas Sands, hedge fund Elliot Management and leading packaging group Uline Corporation.
The Koch Brothers have a strong history influencing US politics and US education systems and are interested in change towards pro-Republican policies but so far have been wary of backing Trump.
It's fair to say that the contributions have been varied across most industries for both political parties.
However, according to OpenSecrets.org, Clinton is outperforming Trump in total donations by quite a large margin.
The global role of the US Dollar
Forex traders know that the US Dollar (USD) plays a crucial role in the global economy.
Here are a few of the reasons why:
- investors see the USD as a safe haven in time of distress and crisis
- the USD is known for its role as a reserve currency of the world
- the value of commodities is nominated in USD
- a large chunk of global trade occurs in USD.
The importance of the US Dollar, the creditworthiness of US debt and the essential role of the US economy in the world is based on the prominent and dominant role of the United States in the areas of geopolitics, military, and economics.
These factors usually do not change when a new President is elected or when a different political party comes to power.
Every US President, of course, sets their own agenda on fiscal, economic and foreign policy.
The policies of the US President in fiscal and economic matters might not impact the role of the USD…
...but they do impact the economy and the markets.
The US President shows his influence primarily via economic and fiscal policy, as explained earlier in the article.
However, the president does not impact the monetary policy nor directly control the interest rate, which is set by the US Central Bank called the Federal Reserve (FED).
The FED has a mandate to set interest rates at a level which targets both a moderate interest rate of 2% and full employment levels.
The US President also does not control the exchange rate.
Rather, it is impacted by various aspects, including the following:
- Interest rate level: high levels will attract capital and increase demand for the currency whereas low interest will weaken demand for it (if the other country stays unchanged then the relative change could spark the currency with a rate change to weaken or strengthen versus other currencies).
- Inflation difference: countries with higher inflation rates will often have central banks which raise interest rates.
- Trade balance: this reflects all payments made between countries for goods, services, interest and dividends. If imports exceed exports, then the deficit needs to be borrowed from foreign sources, which in turn lowers the exchange rate until domestic goods and services become cheaper and more competitive.
This video explains more on why intermarket correlations are critical within the financial markets before we reviews the USD, stock markets and gold.
Financial Markets with Trump or Clinton
This part will analyse the US Dollar versus a wide range of countries and currencies, reviewing both the potential developments with a Clinton and Trump Presidency.
USD/CNY and US elections
The US and China are the two major powers in today's world.
Without any exaggeration, we might say that nothing gets done without close cooperation between the two nations – be it climate change, energy security and allocation, etc.
In this connection, the US election should not have an impact on China and US-China relations.
Also, have in mind that China is not cheap anymore.
After 2005, with the yuan being strengthened and wages in China rising, China today is no longer the great bargain it once was – whether for a tourist or a company looking for cheap goods to import.
Trump frequently claimed that China is a currency manipulator.
Trump states that China is artificially devaluing the currency to their benefit to win their fair share of trade.
Whether this means that Trump will instigate a currency war against the CNY is yet to be seen and perhaps also outside the current mandate of the US FED.
However, we would advise to stay away from trading the CNY/USD pair if Trump is in power…
...as we may see some structural changes outside usual market forces that could cause shock to this pair.
Clinton is slightly different than Trump in regards to China.
While Clinton takes on opportunities to talk hard on China, she doesn't mark China as a currency manipulator.
Instead, she has talked about denying China market economy status under US law, a status it does not enjoy in trade law anywhere in the world.
While she talks hard on China, to us it looks more like a noise than the actual action.
What both Trump and Clinton have in common regarding US-China relations is that they have been committed to repatriating US manufacturing jobs home from China while offering no concrete, workable policies and plans for doing so.
We think that from From China's standpoint, it probably doesn't make much difference who wins the White House.
In the end, business should be run as usual.
USD/CNY we think after the US elections
By opening a new approach and tougher negotiation strategy with China, both Clinton and Trump would be risking devaluing the yuan and the dollar in relation to the rest of the world's currencies.
Longer-term uptrend should be intact and the currency could be bought on dips 6.7291, 6.699, 6.650 – the levels to watch for towards the rounded numbers 6.800 and 6.850.
The term "Trump trade" has largely been involving around the Mexican Peso.
Trump has been constantly promoting the fact that US is losing money to China and Mexico, calling it a trade deficit.
Still, there is no proof that trade deficit is bad for such an advanced country like the US.
For example, Japan has had a massive trade surplus for last 25 years (meaning it exports more than it imports) and its trade has been squeezed by stagnant growth for decades.
In our opinion, the Mexican Peso (MXN) has become the barometer of Trump's chances to win.
Trump Presidency would be bad news for the MXN, so be aware of possible short trades on the USD/MXN pair – or stay away from this pair altogether.
The impact of Trump win on USD/MXN currency pair should be huge.
The MXN falls as Trump rises...
...and gains when he slumps.
USD/MXN we think if Clinton wins
There is a possibility of trend line break towards historical buyers and EMA89 confluence within 17.05-17.33 zone.
After that, we might see a breakout-pullback-continuation pattern towards the broken trend line and a drop below 17.04 towards 15.00 over the course of several weeks and months.
Short-term traders should watch the possibility of trend line break towards the above mentioned zone.
USD/MXN if Trump wins
The USD/MXN is already at historical highs and it should print new highs on Trump win.
The currency pair could reject the trend line strongly aiming for 19.90 and above.
Since we don't see any valid historical data, we need to target rounded numbers – just like banks do.
Targets will be 20.50 and 21.00.
US Dollar trend
With a Trump presidency, we expect:
- the US Dollar to weaken as a first reaction
- To enter a period of volatility or sideways movement as the markets digest the political development and await the new direction from its next leader
- depending on Trump's actions, the USD could strengthen at first as the initial tax cuts boost the economy
- in the long run, the USD could weaken as the debt further increases.
Overall, Clinton presidency should see the US Dollar continue with its strength without any major hurdles.
With a Clinton presidency, we expect:
- her plans to reduce and remove the political uncertainty that the elections have created, which should lead to the US Dollar strength as an initial reaction and the USD uptrend to continue
- technically speaking, the US Dollar is in an uptrend and once the political event is out of the way, the USD should find new legs for a bullish continuation
- most likely, the USD strength will be aided by monetary policy as well.
Why monetary policy?
The US Central Bank, the FED, would be more able to move the interest rates once the political process has been completed.
The FED is probably at least partially waiting with an interest rate decision until after the elections have been completed.
A US interest rate hike will most likely fuel or contribute to the USD uptrend.
As we indicated in an earlier article and according to a PWC study, a rate hike may see that some emerging markets may be adversely affected by the large amount of foreign currency debt they hold relative to their GDP.
This is especially true of Turkey, Colombia, South Africa and Peru.
The problem with a normalising rate environment in the US is that it means an increase on the loan repayments due to the rising rates and the rising USD relative to the local currency.
This may be the wild card event that precipitates the next global financial crisis, that being the foreign currency debt in the emerging markets.
Emerging markets least affected by foreign currency debt include the Philippines, India and Mexico.
We have seen the IMF in recent months raise this as a major risk and they may place pressure on the US Fed to go slow with any rate hikes.
This may only lead to slow rate of strengthening of the USD.
Russia and RUB
Although Trump Presidency could be tough on China and Mexico, a softer stance could be expected on Russia.
Both Trump and Russia's leader Putin have shown admiration for each other.
Although Trump has openly indicated that Putin is not his friend, he has informed the US public that Putin likes him.
Clinton, on the other hand, echoes anti-Russian rhetoric and blames Kremlin for hacking into her emails, which is something Russia denies.
We suspect that under a Clinton presidency, the estranged relationship with Russia will continue and so will the US and EU sanctions on Russia.
This could be different with Trump and we may see a softer stance with regards to the US-Russia relations.
All in all, we are expecting RUB strength under Trump and RUB weakness under Clinton.
USA and EU
The US was one of the lead initiators of the Trans-Pacific Partnership Agreement (TPP), which accounts for free trade among 12 countries, representing 40% of the global economy and 25% of world trade.
Obviously, arrangements like this are a way to divert future US trade with other major economic players such as the EU zone.
We would expect the TPP to remain in play under Clinton and either discarded or at least somewhat revisited under Trump.
Trump seems more focused on trade protectionism than Clinton, and is against expanding free trade.
Besides the TPP, there is a proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU.
This is currently a classified information and is expected to be agreed on by 2019/2020.
This major partnership agreement will shape the trade benefits between the US and EU in the future.
We expect that Trump will be less lenient on the trade terms than Clinton (if EU agrees in the first place).
This means the benefits to the US over the EU will be more likely under a Trump leadership and vice versa under a Clinton leadership.
The impact on stock markets
Similar to Brexit scenario, Trump victory in the US elections will be a surprise for the markets.
Without any bias, we can say that the markets don't like Trump.
On the contrary, Clinton is supported by risk assets and, according to the latest polls, people see her as a winner.
The Dow Jones Industrial Average has generated average returns of 82.7% under a Democratic president…
...which is significantly higher than the 44.8% average returns under a Republican leader.
On average, the S&P 500 saw 17.5% gains in the third year of a president's first term and 11.5% returns during the second term.
According to a theory, analysts often watch S&P 500 to predict who will be elected based on three month returns of S&P 500 preceding the election.
A rise in the index between July and October of an election year has predicted reelection of the incumbent candidate or party…
...while the reverse has pointed to a replacement.
S&P 500 if Clinton wins
On the chart, we can see a three-month period rise in index, thus predicting Clinton win.
Should Clinton win, S&P 500 could spike from current levels towards 2250.
Watch for levels, EMA89 and trend lines for a possible buy into dip scenario.
S&P 500 if Trump wins
Should Trump win, the index could see a substantial drop towards 1800.
The drop should be more exaggerated than a bounce if Trump loses.
The drop could extend to 1550-00 zone.
According to a historical data, gold usually drops before elections.
If democrats win, historical price action hints that we might see gold go up and due to negative correlation, USDx might drop.
However, before the elections, gold usually drops…
...so a possibility is to buy gold into dips should Clinton won.
The table shows negative correlation of gold and USDx including Yen pairs for the last 300 days.
The chart shows a drop in gold prices that preceded rally that happened after the US elections in 2008 when Obama has won.
Notice extremely strong rally in gold after US Democratic president won the elections.
By looking at the gold chart, we can see another drop that gives us an early clue that Clinton is setting up for a win.
We can clearly see a potential inverted Head and Shoulders that is shaping up.
Ascending trend lines and historical price levels (highlighted in yellow) mark potential zones where price could be bought into dips should Clinton won.
This is the same gold chart zoomed out for a better view at historical long term trend lines.
Another scenario is that Clinton victory would mean heightened odds of FED rate hike in December.
However, if Trump wins, we can foresee another gold rally as Clinton dip in gold is buying opportunity while Trump surprise win could be also bullish for gold.
Massive spending with tax cuts with the purpose of boosting growth is what we expect from Trump, so long-term outlook for gold is bullish too.
And this wraps up our report.
Interested in reading more?
Cheers and safe trading,
Nenad and Chris