Tell me who is good for the dollar and I’ll tell you who wins the election

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The charts often tell a story the news reporters miss.

At the moment, four key charts are pointing to US dollar strength.

The Dollar Index broke above the 200-day moving average and the 38.2% retracement of the Aug-Sept fall yesterday.

EUR/USD broke below the 200-day moving average and the October low yesterday.

USD/JPY has been in a steady uptrend and touched the highest level since April on Friday. The pair has pulled back this week but there are a number of reasons to expect strength.

Gold took a beating on Friday, falling $40 to the lowest since Sept 1. Gold is priced in US dollars, so USD strength implies gold weakness. The 61.8% retracement of the August breakout at $1670 is a crucial support level. A break points to $1600.

Analysts lean toward Romney as a better candidate for the US dollar but there are other possibilities as well.

First, any clear outcome would likely lead to a resolution of the fiscal cliff, which I expect will unleash a wave of investment that reflects the recent better tone of US data.

Alternatively, the US dollar strength could be pointing to a disputed election result that sparks a wave of risk aversion (although gold would probably rally in that scenario).

Author: Adam Button

Adam Button is the managing editor of ForexLive™. He was previously the chief currency strategist at XForex and has also worked with Intermarket Strategy. Adam believes there's an edge in knowing every tidbit of news. He was formerly the head of the markets team at the Canadian Economic Press and is a graduate of Ryerson University. Adam lives in Montreal, follow him on Twitter: @FX_Button.

6 Comments

  1. Adam, please what do you mean by ‘a disputed election result’?

  2. My first reaction is Romney. I think markets would much better believe that he’s going to resolve the fiscal cliff even if the Congress remains divided. Of course, if the risk on theme is going to be dominant one and the stock market rallies strongly (and the Greek austerity vote is accepted), then I can easily see the eur snap back to 1.29 and maybe even above.
    If BO wins, the stock market isn’t going to rally (to say the least), market will become pessimistic and because of that and the fear, dollar will strengthen.
    So based on your charts and my thinking out loud, BO is the winner. 
    Now, based on my everyday interactions here in the States, I think Romney is going to win
    1. Democrats are much less enthusiastic than 4 yrs ago, but the Republicans are much more
    2. Economy is still bad. People are disappointed and want change. Obama over-promised and under-delivered.
    3. I think the polls are skewed towards the Democrats. 2 yrs. ago Republicans took back the House. What changed since then that would indicate that the Dems & Obama are in a better position today?

  3. Good morning, Adam. Have you noticed that the AUD/JPY has already voted: leaving its 61.8% retracement line (from that high back in March to the low made at the beginning of June) in the sand and tearing up the path to a probable electoral 76.4% retracement finish (at AUD/JPY 85.275). Only the boys in Beijing – starting on their Thursday – will determine, this week, if it can keep up the pace (potentially blowing through AUD/JPY 86, 87, 88, etc.).

  4. Hi Adam,

    You mentioned that EUR/USD broke below 200 day MA- on my chart MT4 it is still showing above the 200 day MA- why could this be???

  5. Adam, so what is your take?

  6. For the romney fans. You forgot how you dissed ron Paul at the RNC. We however did not forget. I predict an Obama victory due to neocon short sightedness.

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