Meandering into Midterms

Meandering into Midterms

These Midterms were never really expected to be a remarkable market event if they go to plan that is – but a shock on either side could spring forex markets out of this November slumber otherwise apathy levels are in danger of reaching all-time highs. If anything, the US dollar is being subtly sold with GBP pushing higher despite the Brexit noise and EUR coping well despite poor PMI data. But overall things are playing out as scripted with most expecting the greenback to trickle lower on the consensus gridlock result.

None the less there are a couple of moves worth a mention.

US equity markets, surprising to some continue to march higher into the congressional midterms albeit in thin volumes and the extremely cautious trade as few if any investors are willing to stake any large wagers ahead of the outcome.

Gold markets

Equity sentiment doesn’t seem to be too dampened at the potential prospect of a Democrat House and Republican Senate, which the polls are pointing at and with the dollar remaining well within current trading ranges and not showing any significant weakness, Gold hedges have unwound relatively aggressively in the run-up to ballots boxes closing.

Oil markets

Oil prices dropped through a bit of a trapdoor after Brent fell below the 200d MA likely triggering stops. While the focus remains on the waivers issued to eight countries, allowing them to continue the purchase of Iranian barrels temporarily. There were more bearish overtones from International Energy Agency director Fatih Birol is calling on OPEC to ramp oil production even higher, to meet “robust” global oil demand growth, especially in the face of continued declining Venezuelan output coupled with the re-implementation of sanctions. Perhaps also adding further weight to prices is Bloomberg forecasts for domestic crude inventories, which suggests crude stockpiles to have increased by 2 million barrels last week. If tomorrow’s official DOE report confirms, this would mark the longest stretch of inventory builds since March of 2017.

My gut tells me the markets are doing the best to consolidate after running Brent 200-day MA and believing that traders want to see the actual quantified impact of US sanctions – net of the 180-day waivers on the sanctions. But not the less in these overly bearish markets price recovery might be inconsequential as funds will be sellers on rallies.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes