In the last week it happened the most anticipated event of the year, the US presidential election. Although the event stimulates the adrenaline itself, there was also a surprise: Hilary Clinton (the favorite) was beaten by Donald Trump and he will become the new President of the United States.
The market reaction to the election of Trump took all surprised. The initial sell-off was gone in minutes and the markets took soon the confidence in the new President.
As proof of this, we can look at the graphic of S & P index. On Monday, the opening day of the election week, the various movements to the upside generated a positive sentiment. In the night of the election, the S & P index fell and then recovered during the day.
Another important indicator for the forex market is the US dollar that has become the preferred currency after just one day after the elections. The markets seem to have forgotten the months of insecurity that accompanied the election campaign in the United States. The dollar, showing an unexpected strength, seems to have returned the most observed currency by forex market traders.
The initial panic was due to the uncertainty on the policy of the new President, but investors assume he will adopt a mix of expansionary and protectionist fiscal policies that will favor wages and inflation. With higher inflation, interest rates and US dollar will rise for sure.
Now remains only the December meeting of the Federal Reserve, where the market is still hoping to achieve the long-awaited increase of interest rates.
Looking at the major currency pairs, the dollar is winning above all the others.
USD / CAD is bouncing on the long-term support and it goes above the short trendline.
EUR / USD is in pain. The euro, which seemed to have to be one of the safe havens in case of Trump election, subsequently lost the ground gained against the dollar.
GBP / USD continues to have a low volatility. December remains the key month for this cross, when it will be decided both the final implementation of Brexit and the operation of the US central bank.
The most interesting cross to be observed at this time is USD / JPY. The yen had to be, with the euro, the safe haven currency with the election of Trump. After a long period in which the Japanese yen has appreciated against the US dollar, recently the prices have stopped their run at 100. The prices, however, are pushing upward, assuming also the achievement of the “natural” target positioned in the 107.6 area.
Turning to the bond market, however, there was not the same positive wake. The bonds were hit by a heavy sell-off, probably due to the expectation of a rise in interest rate of the Federal Reserve in December and of the rise in inflation.
The collapse of the markets has not happened for several reasons but it is possible that the rise of these days have a short life. We just have to wait and see what happens.