US elections - Analysis of chosen instruments (14. 9 - 21. 9.)
We have 6 weeks until the elections and there is high volatility in the markets. Although this is not directly caused by the upcoming elections, the current situation may indirectly affect the outcome of the elections. Tensions between the US and China and the development of a coronavirus pandemic may be decisive factors. Let's first have a look at the current state of election polls.
The US election polls as at September 21, 2020
Joe Biden continues to lead the national polls. But President Trump is gradually narrowing his lead, as we can see in Figure 1.
Figure 1: Survey of election preferences, source: https://ig.ft.com/us-election-2020/
However, the success in the US election does not depend on how many votes of people the presidential candidate will receive, but in which states he manages to win. In order for a candidate to become a president, he must get the votes of at least 270 electors. The number of electors varies from state to state and it depends on the population of that state. If the current votes of people were converted to the votes of electors in individual US states, Joe Biden would be elected as the president as he would get exactly 270 votes of electors, as shown in Figure 2:
Figure No.2: Conversion of people‘s' votes to electors according to individual states, source: https://ig.ft.com/us-election-2020/
Toss-up states are the states in which this year's elections are very likely to be decided. In these states, none of the candidates currently has a certain victory. With a total of 119 votes in the game in these states, it can be said that at the moment it is not certain who will win the election in the end. In this context, it is worth recalling that President Trump did not manage the coronavirus crisis well, and states such as Florida and Texas were among those most affected by the coronavirus pandemic. That could bring points to Joe Biden. It will therefore be important to monitor the development of the coronavirus in the US. The current state of the coronavirus pandemic in the USA is shown in Figure 3:
Figure 1: Development of new cases of COVID-19 in the USA, source: https://www.worldometers.info/coronavirus/country/us/
Technical analysis as at September 21, 2020
The moving averages used in the technical analysis are EMA 50 (orange line) and SMA 100 (blue line).
The US 500 Stock Index
The index is moving in a growing trend, as shown in the graph in Figure 4. The decline that occurred after reaching the new all-time-high can now be interpreted as a certain correction of this trend. The reasons for the decline are tensions between China and the USA, the bank scandal that was disclosed on September 21, 2020, hopes in the expected economic stimulus in the USA are fading and the increase of the coronavirus worldwide. But the decline may also be a sign that Joe Biden could win the election. As we mentioned in our e-book, Joe Biden is going to raise taxes for American corporations. This would reduce the profits of companies and affect their valuation.
Figure 4: The SP 500 on the daily chart
The current correction on the daily chart is reminiscent of the price formation of the flag, which occurs relatively often in rising trends. The question is when this correction will end and whether it will not eventually become a reversal of the bullish trend. The graph on the H4 time frame might help here, see Figure 5.
Figure 5: SP 500 on H4 time frame
Here, it can be seen that the moving averages are in the bearish set-up as EMA 50 is below SMA 100 and the price is below these averages. In the given situation, the continuation of this correction cannot be excluded according to the technical analysis.
The key levels of supports and resistances are:
Resistance 1 is at the level of 3,300 - 3,315
Resistance 2 is in the zone 3,400 - 3,425. At the same time, it is at the SMA 100 moving average according to the H4 graph.
Support 1 is located in the range of 3,220 - 3,260. The significant level is mainly 3,234, which was the opening price at the beginning of 2020.
Of course, the election result will also have an impact on the US dollar. That is why we present the current situation on the most popular currency pair the EURUSD. On the daily chart, this pair is in Figure 6:
Figure 6: The EURUSD on the daily chart
The EURUSD is in a rising trend that stopped in mid-August and since then the pair has been moving in a side trend. Current market uncertainties related to developments around COVID-19 in Europe could weaken the pair. If the pair reached a level of around 1.15, it could be a good starting level for further growth. In the event of Joe Biden's victory, the EURUSD could strengthen further.
Resistance 1 is in the range 1.1930 - 1.2000
Support 1 is in the range around 1.1700 - 1 1720
Support 2 is in the range 1.1450 - 1.1500
What awaits us this week?
On September 29, 2020, of US time, the first round of debates of presidential candidates is going to take place. Depending on the outcome, there could be high volatility in the markets.
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