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Election Results Could Linger

GBP/USD Daily chart
Source:  MT4 (November 3, 2020)

Sterling appears to be attempting to find a floor. Support on the GBP/USD is seen near the September lows at 1.2675. Resistance is seen near a downward sloping trend line that connects the highs in August to the highs in October and comes in near 1.3125. Short-term momentum has turned positive as the fast stochastic has generated a crossover buy signal.
 

TAKEAWAYS


•    Election Day Climax
•    Sterling Rebounds
•    US Stocks Rally
•    The VIX 
•    DAY AHEAD: Election Day Results


 

GURU WISDOM


“The time your game is most vulnerable is when you're ahead. Never let up.” – Rod Laver
 

MARKETS


The rate of growth of the coronavirus has exceeded many scientists bear case scenario and hospitalizations look to be around the corner. Regardless of who wins the Presidency in the US, the virus will be a competitor that will never quit. For the US to avoid economic catastrophe again, there will need to be restrictions put in place to contain the spread of COVID-19. The reopening plan in Europe and the United States hit a major roadblock. The US is now recording nearly 100,000 new cases of COVID-19 per day and the prospect of new lockdowns loom. 

Despite the spread of the virus, investors seem more concerned about the outcome of the election. US stocks continued to rally, notching up a second consecutive solid gain. The certainty that an election result creates is what the market craves. A scenario where there is no clear outcome will generate volatility and risks lower equity prices. The VIX volatility index continues to edge lower, which reflects a relaxation of concerns that there will be a protracted election battle that could see no clear outcome for several days or even weeks.

The dollar finally reversed course falling on Tuesday after notching up rallies in a 6th consecutive trading session- and fell against most major currencies.

The losses in the greenback provided gains for the yellow metal. Gold prices continued to climb rising for 3-consecutive trading sessions and recapturing short-term support. Crude oil prices rebounded despite higher rates of COVID which appears to be counterintuitive. A shutdown would generate less transportation demand which would weigh on crude oil prices. 
 

Sterling Rallies Ahead of Lockdown


Sterling rallied ahead of the November 5th lockdown which coincides with the Bank of England meeting. The shutdown in the UK is expected to be less strict than the lockdowns in other European centres while also more lenient than the UK's previous shutdown.  Sterling appears to be buoyed by a YouGov poll found that Prime Minister Johnson's plan is supported by nearly 75% of the UK public.  
 

The US Election Climax


The Presidential election has gained most of the headlines but behind the scenes, the battle for the Senate continues to rage. A “Blue Wave” could provide the impetus for new stimulus but also usher in a new regulatory environment. 

There are two seats up for grabs in Georgia, which has leaned Republican for decades. To win a seat a candidate needs to have more than 50%. This could lead to a runoff that will not be decided on Tuesday. A 50-50 tie in the Senate would lead to control by the party that holds the Presidency. The Vice President is the President of the Senate and would break the tie. Tuesday’s election will have widespread consequences. The rally in the market is pricing in a Blue Wave and a quick result. Traders should prepare for the unexpected.
 

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