With the United States dollar and associated forex pairs making up a key part of the market ecosystem, you may be wondering what effects the approaching American presidential election might have. Whether political events push the dollar up or down, you can trade greenback-centric forex pairs like the Micro EUR/USD and Micro CAD/USD with futures. Plus500’s user-friendly platform offers a wide range of ways to enter this trading arena, from forex to indices and more. However, though futures trading’s use of leverage increases potential profits, although the risk of losses must be considered as well.
This offers you, as a trader, a chance to take part in both rising and falling currency markets in a highly flexible way, as election uncertainties unfold. Now let’s take a deeper look into the key relationship between the U.S. elections and market trends so you can hit the ground running however you decide to trade. Read on to find out what might happen to the U.S. dollar’s value just before the elections and beyond:
Main Takeaways
- Election Impact: U.S. elections drive dollar strength or weakness depending on the result.
- Democratic Victory: Could weaken the USD, supporting EUR/USD gains.
- Republican Victory: May initially strengthen the USD, but long-term volatility is expected.
- EUR/USD Strategy: Traders should align trades with polling data and technical levels.
U.S. Dollar Dynamics in Election Scenarios
The U.S. dollar is an important currency in the global economic system, due both to its cyclical movements and status as a safe haven for investments. As a general rule, the greenback strengthens when economic growth is robust. In the 2024 U.S. presidential election, the identity of the White House's newest denizen will likely influence the dollar’s behavior.
Dollar Performance Under Former U.S. Presidents
Over the past few decades, like other facets of the economy, the dollar has seen several ups and downs. Under the first Bush administration in the early 90’s, the U.S.’ currency dropped significantly before recovering and gaining in value by nearly a fifth during Democratic President Bill Clinton’s two terms in office. In the first decade of this century, the greenback again declined during Goerge W. Bush’s administrations. Subsequently, the dollar saw a rally under Barack Obama, generally held steady under Donald Trump, and then climbed upward again during Joe Biden’s presidency.
Overall, while it may be difficult to tease out the interrelations between the complex factors that influence the world’s reserve currency’s market movements, overall, the dollar has fared better under Democratic administrations. However, this cannot be taken as indicating that changes in its value under the next president are a foregone conclusion.
To this end, Plus500 also offers a wide array of trading tools designed for navigating market volatility, such as those surrounding major elections. Its platform provides advanced charting features and a straightforward mobile trading interface, empowering traders to stay on top of the latest shifts. However you’re trading, Plus500 ensures that futures traders can act quickly with essential data at their fingertips.
Dollar Dynamics Under a Democratic Victory
A Democratic victory in the 2024 U.S. election, whether full or partial, is expected by many analysts to have a moderate impact on the U.S. dollar. A decline in inflation may be expected, but with interest rates falling faster than inflation, real rates would also drop, a situation that is generally unfavorable for currency strength. While economic growth would likely remain stable, a slight deterioration in fiscal conditions could weigh down the dollar. Overall, the dollar might experience limited downward pressure, but drastic movements are unlikely in this scenario.
Dollar Dynamics Under a Republican Victory
A Republican victory, on the other hand, could introduce more volatile behavior on the greenback’s part. Initially, the dollar could strengthen due to trade policies and tariffs improving the trade balance, along with higher inflation and rising interest rates relative to other major economies. This could lead to a significant divergence between U.S. and European monetary policies, pushing the dollar higher, particularly against the euro. However, as the economic effects of these policies unfold, the initial strength of the dollar might be offset by longer-term market adjustments, and the dollar could eventually weaken due to broader macroeconomic shifts, including the potential for reduced confidence in U.S. fiscal stability.
Understanding How the U.S. Election Impacts the FX Market
The U.S. presidential election has significant implications for forex markets, particularly due to its impact on trade policy, fiscal spending, and interest rates. A divided government is likely, with the president having primary control over trade policy, which can directly affect forex movements. Depending on the election results, the dollar's trajectory could shift, driving fluctuations in global currencies and pairs like EUR/USD, although past trends don’t indicate future results.
How a Democratic Victory Would Affect the EUR/USD
A Kamala Harris win would likely continue the economic policies of the Biden administration. This scenario could weaken the U.S. dollar due to lower fiscal expansion and declining inflation. With real interest rates falling, the dollar would face downward pressure, benefiting the euro in the EUR/USD pair. A Democratic win might push EUR/USD above resistance levels around 1.1300, with potential gains toward 1.1850. The overall market response would likely be more stable, allowing the euro to strengthen against the dollar in the medium term.
How a Republican Victory Would Affect EUR/USD
A Republican victory, with Donald Trump as president, would likely lead to more aggressive trade policies, such as increased tariffs. This could initially strengthen the U.S. dollar due to higher inflation and rising interest rates. The EUR/USD pair might fall, potentially reaching support levels near 1.1000. However, the dollar's strength may be short-lived, as longer-term concerns over fiscal expansion and global economic tensions could reverse this trend, allowing the euro to regain some ground later in the election cycle.
How to Trade EUR/USD Before, During, and After the U.S. Election
Trading the EUR/USD during election season requires a strategic approach, as the results can drive significant volatility. Before the election, traders should monitor opinion polls closely. A narrowing race could lead to uncertainty, triggering sharp movements in the currency pair.
During the election, volatility is likely to spike as results come in. A Trump win could strengthen the dollar, while a Harris victory may weaken it, so traders should adjust their positions accordingly.
Technical Analysis of EUR/USD
From a technical standpoint, the EUR/USD is on a bullish trend as of mid-October 2024, and key resistance levels to watch at the moment range from 1.1275 to 1.1750. On the downside, support is located around 1.1000, with a more critical level at 1.0900, where a break could signal a potential downturn. Traders should use these technical levels in conjunction with fundamental analysis to inform their trading decisions. However, it is necessary to remember that analyst opinions and conclusions gleaned from past market movements cannot be used to accurately predict future trends.
Conclusion
The U.S. presidential election plays a pivotal role in the forex market, particularly influencing the dollar's strength against the euro. Depending on the outcome, the EUR/USD may experience significant movements, so traders should proceed with caution, whether they trade forex directly or engage in futures contract trading with platforms like Plus500.
Ultimately, platforms like Plus500 can be a useful addition to a trader's tool chest when navigating the uncertainty of the U.S. election cycle, thanks to their broad offering of ways to trade futures from energy contracts to agriculture. With built-in risk management tools and flexible trading options, Plus500 allows traders to adjust their strategies in real-time, ensuring they remain well-positioned to trade on political-driven market shifts, whatever the election's outcome.