US presidential elections are taking place today: some polling stations have already been working for several hours, while some have recently opened, depending on the state and time zone. It is difficult to overestimate the importance of this event, including in the context of the currency market. The head of the American state, in particular, has broad powers in determining foreign policy, and also submits to Congress for approval the candidacy of the Fed Chairman. That is, the curve of the development of the trade war with China will be determined and ministers and key advisers including on economic issues will be appointed or reassigned, depending on who will take the White House. In addition, Federal Reserves' Chairman, Jerome Powell, whom Trump so persistently wanted to remove last year, ends in 2022. In other words, America is on the verge of political changes, which will clearly affect the US dollar.
Much speculation roams around in the press about how the dollar will behave if Biden wins or Trump wins – figuratively speaking, which candidate is "more profitable" for the dollar bulls. However, this reason is too unclear: as a rule, experts discuss a long-term time period. But if we consider the medium-term prospects of the US currency, in the context of the EUR/USD pair, then several other fundamental factors come to the fore.
Traders will not discuss global issues, but rather more common issues in the coming days (and possibly weeks). Moreover, the fundamental background for the EUR/USD pair will depend on simpler things: a) whether the clear winner of the election will be determined based on the results of the vote; b) whether the losing candidate recognizes his loss. The news stream will revolve around these two common questions, while the market will discuss the foreign policy and other intentions of the 46th US President much later.
Therefore, today's attention of EUR/USD traders should be focused not on macroeconomic news, but on American news feeds. As you know, the results of elections in the United States are determined not by the majority of votes, but by their distribution in the electoral college, the number of which for a particular candidate depends on the voting in specific states. There have been cases where a candidate won a nationwide majority but lost an election, such as Al Gore in 2000 and Hillary Clinton in 2016.
That is why the objects of "increased attention" are traditionally the so-called "wavering States". In most cases, the election results will depend on voting results in eight fluctuating states: Florida (29 electors), Pennsylvania (20 electors), Ohio, Georgia, Michigan, North Carolina, Arizona and Wisconsin. Generally, these states will give 135 electoral college votes. The key states to watch out for on election night are Pennsylvania and Florida. If Trump's victory in these states is not confident (not to mention losing), then the chances for an overall victory will decline and vice versa – if he stalked these key regions of the country, the intrigue of the elections will continue. According to polls that were conducted before the election, the above States recorded around the same level of support for candidates from both parties (with a slight margin in favor of Biden).
In view of this, experts advise to be patient and not to jump to conclusions before counting all the votes. According to statistics, Biden voters are more likely to vote by mail, whereas supporters of the Republicans prefer to personally drop the ballot into the ballot box. Therefore, at the beginning of the counting of votes, it may seem that one of the candidates is gaining a landslide victory, depending on which ballots are processed faster. However, we should not trust the dollar's fluctuations during the counting of votes, as there is a very high risk of running into false currency movements. Usually, the name of the next president in the United States is known on election night, but this year's announcement of the winner may be postponed for several days.
The fact is that many Americans voted early this year due to COVID-19 and approximately two thirds of all early votes are mail. It is their calculation that can delay the whole process and the moment of declaring the winner. It is also worth considering that different states of America have different laws. For example, in Florida and North Carolina, it is allowed to start counting ballots in the mail before Election Day. Local officials promise to deal with this quickly. But in Pennsylvania, Wisconsin and Michigan, you can start counting votes only on election day. Therefore, in these states, the publication of official results may have to wait.
It is also worth recalling that in addition to the US presidential elections, elections for the Senate, House of Representatives and governors in 11 American states are also held today. The Americans will decide the fate of 35 Senate seats. This election could change control of the Upper House of the US Congress, where the majority belonged to the Republican Party until today. If the Democrats can change the situation with Biden's victory, then the Democratic Party could then "lobby" a new $ 2.2 trillion stimulus package (the document was already approved in the House of Representatives last month). However, it will be difficult to predict the first reaction of the US dollar to this win. In this case, everything will depend on Trump's behavior. If he does not admit a loss, then the electoral process will actually continue in the courts.
As a result, the next day will be at least very stressful for traders of the EUR/USD pair (in fact, as for all traders of dollar pairs). A clear and unambiguous election result will put pressure on the US currency (which is used as a defensive asset), which will lead to a sharp rise in the EUR/USD pair. In particular, this explains the current correctional upward pullback of the EUR/USD to the 17th figure. According to American journalists, Biden was still able to turn the situation in his favor in the wavering States during the last days of the election campaign. However, these assumptions may not be confirmed, so long positions as well as short ones do not look reliable. Before the voting and counting process is complete, trading dollar pairs is more like a game of roulette, since the election results (as well as Trump/Biden's reaction) is impossible to predict.
