The US Midterms are set to take place today, with all eyes on the Democratic party, as they attempt to regain control of Congress.
MORNING OVERVIEW
The RBA’s interest rate decision took place earlier on today in which the bank hiked by 25 basis points as widely expected. For today, market participants are shifting their focus to the US midterm elections where the Democrats are vying for control of Congress.
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| US 500 | 7539 | -0.09% | US Midterms |
| AUD/USD | 0.6970 | -0.41% | RBA split decision |
| EUR/USD | 1.1192 | +0.04% | US Midterms |
| Gold | 3902 | -1.17% | US Midterms |
| Brent | 106.45 | +1.64% | Will the US strike Iran this week? |
KEY MARKET THEMES
01 — US Midterms today
The US midterm elections, are in the market’s focus. All of the House of Representatives 435 seats and about a third of the Senate’s seats are up for grabs. Currently Republicans control both chambers of the US Congress allowing for the Governments policies to pass into law, with a relative ease. Yet some polls imply that the Democrats may be able to flip one if not both Chambers of Congress. The high stakes elections could result in heightened volatility in the dollar. Particular attention is being directed towards the Alaska Senate race, amid recent developments concerning behind-the-scenes political manoeuvring. The Michigan Senate contest has also attracted attention following US Representative Haley Stevens’ decision to change her endorsement in favour of the Republican Senate nominee.
Market implication (USD): N/A
02 — RBA hikes by 25 basis points as was expected
The RBA hiked interest rates by 25 basis points as was widely expected by market participants. In Governor Bowman’s press conference, she stated “There is a risk that inflation expectations among households and businesses will rise, making the task of bringing inflation back down to target even more difficult”. The comments by the RBA Governor tend to showcase a willingness for further rate hikes in the future, which could provide support for the Aussie. However, the decision to hike was not unanimous with 3 members voting against, showcasing divisions within the bank which may dampen rate expectations. Thus, the dissent within the bank could predominantly weigh on the Aussie following the banks decision.
Market implication (AUD): Bearish
03 — US JOLTs figure due out today
As attention for the US Employment data begins to garner some momentum, we would like to note that the US JOLTs employment figure for the month of September is due to be released later on today. The figure is expected to showcase an improvement of the US labour conditions in the US economy which in turn could provide support for the dollar. Hence a better than expected figure could further aid the greenback and vice versa. Whereas a lower than expected could weigh on the USD.
Market implication (N/A): N/A
WHAT MATTERS TODAY
US Midterm elections polls open
Time GMT+2): 24:00
Expected: N/A
Previous: N/A
Potential market reaction:
Volatility in the USD
US JOLTs Job openings figure
Time GMT+2): 17:00
Expected: 7.150M
Previous: 7.079M
Potential market reaction:
Could support USD
ASSET FOCUS
[EUR/USD , FOREX]
EUR/USD appears to be moving in an upwards fashion. We opt for a bullish outlook for the pair and supporting our case is the RSI and MACD indicators below our chart which tend to imply a bullish market sentiment. For our bullish outlook to be maintained, we would require a clear break above our 1.1245 (R1) resistance line with the next possible target for the bulls being our 1.1310 (R2) resistance line. On the other hand, for a sideways bias we would we would require the pair to remain confined between our 1.1185 (S1) support level and our 1.1245 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below our 1.1185 (S1) support level, with the next possible target for the bears being our 1.1120 (S2)
KEY LEVELS
- Resistance (R1): 1.1245
- Resistance (R2): 1.1310
- Support (S1): 1.1185
- Support (S2): 1.1120
Technical View: Bullish
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| US Equities | Neutral | Midterms |
| USD | Neutral | Midterms |
| Gold | Bearish | DXY |
| Oil | Bullish | Possible strikes on Iran this week |
TRADING SPHERE VIEW
Bullish for OIL
Our base case:
We wouldn’t be surprised to see oil prices moving higher this week, considering the possible strikes on Iran by the US next which have been floating around for a few days.In addition US oil executives from Chevron and Exxon Mobil have cancelled their trips to the Middle East next week, which tends to beg the question as to their reasoning behind such a decision.
What would change our view:
No strikes on Iran this week
RISKS TO THE VIEW
Unexpected events
Changing of the balance of power in Congress
TODAY’s WATCHLIST
01 US Midterms
02 US JOLTs figure
CLAUSE DE NON-RESPONSABILITÉ : Ces informations ne constituent ni un conseil en investissement ni une recommandation d’investissement. Il s’agit d’une communication à caractère marketing.
