The 6 November midterm elections will serve as a first political bellwether ahead of the 2020 presidential elections. Voters will be choosing members of Congress - 35 senators and all 435 members of the House of Representatives. Even though President Trump’s name is not officially on the ballot, there can be no doubt that this is a referendum on his politics, as Trump and his presidency have been the dominant topic of most campaign races.
Republicans are well positioned in the battle for the Senate though as only nine of their seats are up for election, while Democrats are defending 24 of theirs and two independents who vote with them are also up. Polls suggest that the Republicans will keep a majority in the Senate, while the Democrats may take the House of Representatives. If the Democrats do win the House, their main focus will be to lay the groundwork for the 2020 election, when the party hopes to win back the presidency as well as the majority in the Senate.
If Democrats win control of one or both of those houses, they'll be able to limit how much President Trump can achieve in the final two years of his term. We do not expect any change in trade policies or an infrastructure program, but the Democrats may attempt to use the control they gain over House committees to launch oversight investigations into several issues, including the president's business dealings.
The USD could weaken somewhat in the event of a Democrat victory in the House. We should also expect stronger commodity currencies (CAD), especially those related to Chinese economy (AUD, NZD) and weaker safe-haven currencies (JPY, CHF).
EUR/USD
Trading strategy: Long
Open: 1.1400
Target (NYSE:TGT): 1.1570
Stop-loss: 1.1345
Recommended size: 2.67 mini lots per $10,000 in your account
Short analysis: Technical signals are mixed – long white candlestick line on Thursday and long upper shadow on Friday’s candlestick line. The pair is testing 7-day exponential moving average (1.1384) today, a close above this line will be a bullish signal. We think that U.S. midterm elections results should weaken the USD and that is why we keep our bullish outlook here.
GBP/USD
Trading strategy: Long
Open: 1.2950
Target: 1.3150
Stop-loss: 1.2950 (raised from 1.2850)
Recommended size: 1.50 mini lots per $10,000 in your account
Short analysis: The GBP was lifted on Monday by a report over the weekend that said an all-UK customs deal will be written into the legally binding agreement governing Britain's withdrawal from the European Union. That would mean an Irish backstop deal to avoid a hard border between the British province of Northern Ireland and the Irish Republic, is not required, the Times reported. The issue has been the main stumbling bloc to London and Brussels agreeing a deal. We remain long with stop-loss raised to the entry level.
AUD/USD
Trading strategy: Long
Open: 0.7200
Target: 0.7420
Stop-loss: 0.7120
Recommended size: 1.50 mini lots per $10,000 in your account
Short analysis: Bull signals increase as October's high, the 2018 down trend line and 55-DMA get cleared. RSIs are biased up but the daily is near overbought and the daily cloud base is nearby. We remain long. In our opinion the AUD will gain the most after U.S. midterm elections.
USD/CAD
Trading strategy: Short
Open: 1.3120
Target: 1.2920
Stop-loss: 1.3220
Recommended size: 1.96 mini lots per $10,000 in your account
Short analysis: The CAD dipped against a broadly stronger USD on Friday, reversing from an earlier one-week high, after the release of domestic jobs data that was not firm enough to raise bets for another Bank of Canada interest rate hike next month. In our opinion U.S. mid-term elections should support the loonie. We remain short.
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