Summary
I am sure every trader is aware of the USDollar weakness that ensued this past week due to concern over the outcome of the US election on November 8. As you may remember, last Friday the FBI announced that new e-mails had been discovered in the Clinton investigation which saw a drop in the USDollar against all its counterparts, except Mexican Peso which weakened quite significantly.
On Monday USDollar moved up slightly during the London session though at the opening of NY price fell and continued falling for the remainder of the week, as polls between Clinton and Trump continued to narrow. Bearish momentum slowed slightly on Thursday and Friday though USDollar bulls failed to break the downward trend despite positive data and an increase in the chance of a rate hike as per the Fed Watch Tool, which has subsequently dropped down from 71.5% to 66.8% since Friday.

Due to the market uncertainty over the election, investors have moved to cash to protect their portfolios. This is important to note because one should pay attention to the bigger picture. While the election was the only game in town last week for USDollar traders and will probably remain so for this week, we can’t overlook the FOMC and the future of interest rates for America. Some traders argue that a trump win could change the Fed’s course though we need to look at the facts and remain focused on what is real vs. reacting emotionally to speculation.

The FOMC have been very clear about what they want to see before they hike rates. At the last FOMC meeting the board decided to leave rates unchanged saying that they will continue monitoring the job market and inflation indicators which are moving in a positive, albeit gradual, direction. In the statement, several mentions regarding energy prices were made saying that inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The recent fall in the oil price is not what the FOMC wants to see. A low oil price is an inflation killer – especially when one considers the rate of the drop in the price over such a short period (last week saw the biggest weekly decline since January).

As far as data releases are concerned, we saw a bullish release on ISM Manufacturing and ISM Manufacturing Prices though ISM non-manufacturing came in less than September. Non-Farm Payrolls came in a little lower than forecast though what you want to pay attention to is the revised number from September – up 191k from 165k. Also average hourly earnings came in higher than expected with a revised number from September – up 0,3% from 0,2%. The FOMC will be happy to see that.

US 10Y Treasury Note Yields closed the week at 1,79 down slightly from the previous week’s close at 1,86, hence the slight drop in the Fed Watch Tool.

In a speech by Stanley Fischer on Friday, Vice Chair of the FOMC, and the Mundell-Fleming Lecture by Lawrence H. Summers at the IMF Annual Research Conference, it is very clear that the focus right now is one of decreasing demand and low interest rates globally. Fischer mentioned in his speech that continued improvement in the labor market and a continued move towards or exceeding the inflation target will provide an indication as to the behavior of output and indicate where growth in demand is going to come from in the coming years. I think what is key to recognize here is that while traders face short term volatility caused by risk events like the election, the FOMC are looking at years of back data and forecasting years into the future. The term of the Chair and Vice Chair of the FOMC far exceeds the term of a president, even if the president serves a second term. Therefore focus on the bigger picture and be careful of being swayed by a market that is behaving in an irrational or emotional manner at the moment. While recent market moves have not been ideal for USDollar bulls, I am going to have to hear the FOMC clearly state that they are done with raising rates before I change my long-term bias from bull to bear.

Commitment of Traders Report 1 Nov
It is important to identify whether the recent bearish rally in the USDollar was due to an increase in short positions or simply bulls getting out. If it’s lots of bulls getting out then we can expect these buyers to return to the market once the election is over, should the outcome of the election not change the reason they were long in the first place which I attribute to future rate hikes and a bullish US economy. However, if the drop was due to lots of sellers entering the market then we need to pay attention to why we have USDollar bears suddenly entering the market as that means something fundamentally has changed.
Overall the COT report does not indicate an increase in USDollar bears on any of the pairs except Aussie where we did see an increase in traders long Aud and net non-commercial positions trending up week over week since 20 Sep ’16. Note that the COT report was drawn before the UK court outcome and BOE rate decision meeting and so next week’s COT report will indicate if there was a change to traders long GBP.

US Election
Recent market moves could indicate that a Trump victory would result in a drop in the stock market, weakness in the USDollar and Mexican Peso and strength in the Japanese Yen while a Clinton win would result in a rise in the stock market, USDollar and Mexican Peso strength and Japanese Yen weakness.
Of course, one must consider possible scenarios that could take place. A win would have to be uncontested by the loser, which is unlikely, and the winner would have to win by a large margin. This means that however the market decides to respond to the outcome, we could see a lot of volatility and some massive whipsaws in either direction before the market chooses a final direction on the day or in days to come.
This sounds like a lot of risk to me and while a lot of traders are thinking about how much money they are going to make trading this, one has to think first and foremost about the possibility of losing money as a result of highly risky and highly volatile market conditions. Keep in mind that when the news is released the market will move with a further market response seen in the following Asia, London and NY sessions. If you are going to trade then have a plan for a Trump win or a Clinton win with a clear idea of the pairs you are going to trade and how you intend to trade them with important levels of support and resistance clearly identified before the results are released. Also, be a little more conservative with your lot size than you usually are. Above all – definitely, absolutely and without a question of a doubt, do not risk money you can’t afford to lose.

Technical Analysis
Move on the USDollar, USDollar pairs, Nikkei and Yen pairs will be dictated by the outcome of the election. The purpose of the following technical analysis is to identify immediate and longer term support and resistance as well as existing trend lines. I will be keeping a close eye on Dxy and the Nikkei and then using this information to inform USD strength/ weakness and Yen strength/ weakness. The reason for including a Nikkei analysis in a USDollar weekly review is due to the correlation with Yen, the USDollar and US 10Y T-Note. When the yield for the 10Y T-Note goes up Yen weakens as a result of the Nikkei moving higher. This is due to investors going long Nikkei stocks due to the strength of the USDollar weakening the Yen. A weaker Yen means better earnings from Japanese companies and therefore a better return on investment for bulls long Japanese stocks.

Dxy Daily

Price fell just below MM3 giving bears a target of MM1/ MS2. Price is currently just above trend line role reversal support from Feb and July highs with trend line support from June and September lows indicating that bull trend has not yet been broken. Immediate horizontal support eyed at MS1 then just above MS2 and finally at MS3. If price breaks below MS3 that will indicate a break of the bottom of the range formed by Aug '15, Aug '16 and September lows. Resistance is eyed at the bear fib zone just above MPP drawn from Oct 28 '16 swing high to 4 Nov '16 swing low. Further resistance is eyed at MM3 and MR1. If price breaks above MR1 Dxy will have broken the Jan '16 high.

US 10Y T-Note

Price came off MM2 (coinciding with the support trend line from Aug '16, Sep '16 and Oct '16 lows) at the start of the month giving bulls a target of MM2/ MR2. Immediate resistance eyed at MM3 and MR1 (which coincides with role reversal resistance trend line from Mar '16 and Aug '16 lows and bearish trend line from Jul '16, and Sep '16 highs) with higher resistance eyed between MM4 and MR2.

Nikkei Daily

Price came off MM3 at the start of the month after a double top on H4 at trend line resistance from Jul '16 and Sep '16 highs. This gives bears a target of MM1/ MS2. Price is currently at trend line support from Jun '16 and Sep '16 lows and role reversal support from trend line off of April '16 and Sep '16 highs. This is a pretty crucial area for the Nikkei as a break of this level will end the slow but steady bullish trend that started in July '16. Support is eyed at MS1, MM1 and further down between MS2 and MS3. Resistance is eyed at MPP and the bullish trend line where price fell at the start of Nov '16. More extreme levels of resistance are eyed at MM4 and MR3. More extreme levels of support are eyed at the double bottom of the swing low in Feb '16 and June '16.

USDJPY Daily

USDJPY is highly correlated with the Nikkei. Price came off MM3/ WM3/ 105 after a double top at MM3/ WM3/ 105 on H4. Price is currently at 103. Support eyed at 100 and 99. Note that price rebounded off 99 at Brexit. Extreme levels of support are eyed at 96/ 95 and 94. Resistance is eyed at MM3/ 105, MR1/ 106,500 and 107/ 108. Extreme levels of resistance are eyed at MR3/ 111.

EURUSD Daily

Bull target for the month is MM4/ MR2 which coincides with the price level where the ECB dump Euros. Price is currently at resistance with MR1 just above. Extreme resistance is eyed at MR3. Support is eyed at MS1 and extreme support is eyed at 1.05

Gold Daily

Price came off MM2 at the start of the month with a bull target of MM1/ MR2. Reaching that price level would mean a break of the resistance trend line from July '16, Aug '16 and Sep '16 highs. Price is currently at role reversal resistance marking the bottom of the descending triangle price broke out of at the beginning of Oct '16. Extreme resistance is eyed at MM4, MR2, the zone highlighted in red just above MR2 and MR3. Support is identified at the bullish trend line from Dec '15 and Oct '16 lows. Extreme support is identified at the 50% and 61.8% fib of the Dec '15 swing low and July '16 swing high.

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