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US elections - Analysis of chosen instruments 22/9 – 28/9/2020
We have 5 weeks until the election and the markets continue to be highly volatile, especially on stock indices, with the VIX fear indicator hovering above value 26 (average is around 15). Stock indices weakened sharply last week and the US dollar strengthened. Yesterday, however, sentiment changed and indices rose. However, the question is whether this is a longer-term bullish signal or just a temporary correction before the first presidential debate, which is today and the latest news indicates it will be very interesting.
The press reported on Monday that President Trump had not paid taxes for ten years and indicated his huge indebtedness. This could significantly negatively affect the notion of its ability to get the US out of the current economic crisis better than Joe Biden. Solving economic problems has so far been the area in which Joe Biden lost the most to his competitor. President Trump called the report as fake news. Trump is the first president since 1970 who did not publish his tax return. Joe Biden has disclosed his tax returns.
Election preferences as at September 28, 2020
As for the so-called popularity election, i.e. how many voters would vote for their candidate, the situation has not changed compared to last week and Joe Biden continues to lead by a difference of 7%, as we can see in Figure 1.
Figure 1: Survey of election preferences, source: https://ig.ft.com/us-election-2020/
We reiterate that to become a president in the USA, it is not the popularity of a candidate that wins the election, but it matters in which states he manages to win. In order for a candidate to become the president, he must win the votes of at least 270 electors. If the candidate did not reach the required number of electors, then the president would be decided by Congress according to a special constitutional procedure.
The number of voters varies from state to state and depends on the population of that state. Therefore, to get a more realistic result of a survey, it is necessary to recalculate the votes of popularity according to the state in which voters will vote and then assign the candidates the number of electors obtained.
While last week Joe Biden would get exactly 270 votes from voters, the situation has now changed and Joe Biden would currently get 255 voters, see Figure 2:
Figure 2: Conversion of people's votes according to individual states, source: https://ig.ft.com/us-election-2020/
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 158 electors at stake in these states (last week it was 119 voters), 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. The latest development of the coronavirus pandemic in the USA is shown in Figure 3, which shows that the number of new cases of COVID-19 has been increasing slightly in recent days.
Figure 3: Development of new cases of COVID-19 in the USA, source: https://www.worldometers.info/coronavirus/country/us/
Technical analysis as at September 28, 2020
The moving averages used in the technical analysis are EMA 50 (orange line) and SMA 100 (blue line).
The SP 500 Stock Index
The index is moving in a growing trend, as shown in the chart in Figure 4. The correction, which had been taking place since the beginning of September, stopped last week and the price broke through the top line of the declining channel, which in this rising trend resembles the flag price formation.
Figure 4: The SP 500 on a daily chart
The situation on the chart H4 is in Figure 5.
Figure 5: The SP 500 on the H4 chart
Here it can be seen that the moving averages are still in the bear constellation as EMA 50 (the orange line is below SMA 100 blue line). The price has reached an average SMA 100, which can work as resistance. Points A and B create double bottom supports, and the level around point C is the peak of the double bottom formation. If the price does not return below the level defined by point C, then the price could rise further.
Key levels of support and resistance are the following:
Resistance 1 is in the zone 3,400 - 3,425.
The moving average of SMA 100 on H4 where the price is currently reacting, can also be considered as resistance.
Support 1 is in the range of 3,325 – 3,330. Here, there is the level at which the top of the double bottom formation has been broken.
Support 2 is then in the range 3,222-3,336.
The significant level is especially 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 growing trend, followed by a side movement. The level of support for this side move was broken last week and the pair began to weaken, mainly due to an increase in COVID-19 cases in Europe. Before the first presidential debate, the euro began to strengthen. We mentioned earlier that a possible victory of Joe Biden could lead to a strengthening of the euro. So it seems that last week's decline could be a correction of the upward trend.
Resistance 1 is the level of pierced support in the band 1.1700-1.1720
Resistance 2 is in the range 1.1930 - 1.2000
Support 1 is in the range around 1.1600 - 1 1620 (this is the last low, from which the price is currently starting to turn upwards).
Support 2 is in the range of 1.1450 - 1.1500. Here, there is Fibo 61.8% and at the same time, there is a breakthrough of previous resistance. There is also an average SMA 100 on the daily chart. It is a very strong level.
What awaits us this week?
On September 29, 2020, according to American time, the first round of debates of presidential candidates will take place. So far, it seems that all the advantages are held by Joe Biden. We'll see if President Trump pulls out an ace up his sleeve. Depending on the result, there could be high volatility in the markets, which we can expect on September 30, 2020.
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