Election effects? | Forex Factory

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Election effects?

  • #1
  • First Post: Nov 4, 2006 9:24am Nov 4, 2006 9:24am
This coming week brings elections in the US. I'd like to hear opinions on what effect you think it will have in the markets.

Republicans are fighting to stay in control, but Dems look very strong this year. Democrats want to roll back all the recent tax cuts and leave Iraq, while the Republicans want to continue in Iraq and cut even more taxes.

How do you think either scenario will effect the markets?
  • #2
  • Nov 4, 2006 11:02am Nov 4, 2006 11:02am
I would think that a democratic victory would be bullish for the dollar. They would have to do a better job than the Repubs in being fiscally conservative (it would be impossible to do a worse job than the current Repub president and congress). Best case is congress and the president can't do anything and therefore neither party can screw up.

improvements in trade and budget deficit would have to be good for the dollar.
  • #3
  • Nov 4, 2006 12:16pm Nov 4, 2006 12:16pm
actually, the victory of democrates is already priced on currency markets. Hence, no significant move in dollar value is expected after elections.
However, the victory for Republicans would be big surprise and dolar negative.
  • #4
  • Nov 4, 2006 2:39pm Nov 4, 2006 2:39pm
If that is priced in by markets, so why we didn't see any dollar strength following that matter.

on the other way, if that didn't really affect the usd in a positive way and we didn't see usd strength, why would we see usd weakness on ther way around
Forex is not easy!
  • #5
  • Nov 4, 2006 8:05pm Nov 4, 2006 8:05pm
Read the story on the link at the bottom, it is by Kathy Lien with evidence to back up what she states. Essentially The most important part is having one party win both the house and senate since it brings harmony which in turns makes it easier to pass legislation. A divided house makes it harder and keeps most of the current laws intact.

Historically speaking a Republican controlled house/senate is better for the dollar since they are big company and tax cuts which is good for the dollar, remember lower taxes means more money to spend. On the other hand there a bills out there like the one that wants to tax all imports from China 27% which in theory would cut down on the deficit and bring back some jobs to the US. If anyone finds any other information post it since I am curious since this is the first time I go through an election since starting FOREX.

http://www.dailyfx.com/story/special_report/special_reports/Where_Goes_Congress__So_Does_1161983435221.html
  • #6
  • Nov 4, 2006 8:14pm Nov 4, 2006 8:14pm
Democrates win mean no work gets done, keeping the current policy the way it is for the next two years. No new spending bill will be passed, good for the dollar.
  • #7
  • Edited 9:07am Nov 5, 2006 8:48am | Edited 9:07am
Quoting AhmedFouad
If that is priced in by markets, so why we didn't see any dollar strength following that matter.

on the other way, if that didn't really affect the usd in a positive way and we didn't see usd strength, why would we see usd weakness on ther way around
AhmedFouad

For sure all macro economic and global political factors are priced in before we even start to try realize what impact these factors on pricing may have.
That's why we all prefer relay on TA rather than FA.
The truth is that we have no way to kow what exactly the impact of elections is, in other words we don't know what dollar value would be without elections.
  • #8
  • Nov 5, 2006 9:06am Nov 5, 2006 9:06am
Thanks for your reply.

I am also sure that all news releases and world news which affect markets are priced in. but sometimes when I think a bit about it, I find that market does not price some things, and sometimes market reaction is more than what it deserves, and other times it underestimates these factors. I am sure there is no such calculator or a rule for fundamental analysis, and we can't control every trader reaction. Maybe you are just right, technical analysis should erase this type of headache.

Example..earlier time when the EURUSD trend was down, and USD had a pack of negative news in streak, EURUSD was just pushing lower and lower.. and traders said every other currency has its own problems and thats why market does not look for negative USD news.. in the past week, we have seen dollar sharply sold on the back of the same negative USD news. and If you asked a trader what changed? I think nothing. USD rate view still same, ECB and BoE. So I really think that these fundamentals are nothing but misleading. and they are "excuses" to buy or sell in a TA trend.
Forex is not easy!
  • #9
  • Nov 5, 2006 9:08am Nov 5, 2006 9:08am
You're right there is no way to know but since this is the type of event that you can look at historical results we can have somewhat of a clear picture of what will happen. From the research I've been doing the best scenario for the dollar in order is Republicans win since we have a republican president (Big business and tax cuts), Democrat wins(There is harmony and support of the Chinese 27% tax which will help the deficit and help bring jobs back to the US), A divided house is the worst case scenario. Nothing will get done since one will veto the other, no harmony).

The data shows in recent history most of the time one party wins both parts it is good for the dollar since there is harmoney so new laws are easier to pass and you have new senators/congressmen trying to make a name for themselves so they try harder for the new laws to pass. The split means harder to get new laws and the old laws stay in place longer which in general is not good. We will see on Tue but then again this is a decision that has a 3 month to over a year lasting effect not a one time news alart like NFP or GDP so time will tell.
  • #10
  • Nov 6, 2006 6:30am Nov 6, 2006 6:30am
All most bad, that it was possible to make with dollar it is already made. The dollar still will hold on not one elections
Prof Herman
  • #11
  • Nov 6, 2006 6:36am Nov 6, 2006 6:36am
New perspective: "<table style="text-align: left;" border="0" cellpadding="0" cellspacing="0" width="600"><tbody> <tr> <td>Conventional wisdom states that Democrats may win both the House and the Senate in which case the dollar is likely to weaken as FX markets generally dislike any change in the political climate. Yet if Republicans manage to retain the Senate – and latest polling suggests momentum may be going their way – the resulting gridlock in Washington would in fact be seen as dollar bullish. Furthermore, a full Republican win of Congress – a long shot to be sure – would be just the kind of surprise that could propel the dollar higher as continuity would be assured. In either case, order flows are likely to be muted as pairs meander back and forth until the 2006 election results begin to trickle in late tomorrow night. Stay tuned. We certainly will be."

</td></tr> <tr> <td>
</td></tr></tbody></table>
  • #12
  • Nov 6, 2006 9:20am Nov 6, 2006 9:20am
Looking at the Last set of generic polls that show a dramatic tightening + difficulty in getting accurate polls due to cells ect., don't be suprosed if the R's kep both houses.
  • #13
  • Nov 6, 2006 9:26am Nov 6, 2006 9:26am
Quoting migamb
New perspective: "<TABLE style="TEXT-ALIGN: left" cellSpacing=0 cellPadding=0 width=600 border=0><TBODY><TR><TD>Conventional wisdom states that Democrats may win both the House and the Senate in which case the dollar is likely to weaken as FX markets generally dislike any change in the political climate. Yet if Republicans manage to retain the Senate – and latest polling suggests momentum may be going their way – the resulting gridlock in Washington would in fact be seen as dollar bullish. Furthermore, a full Republican win of Congress – a long shot to be sure – would be just the kind of surprise that could propel the dollar higher as continuity would be assured. In either case, order flows are likely to be muted as pairs meander back and forth until the 2006 election results begin to trickle in late tomorrow night. Stay tuned. We certainly will be."



</TD></TR><TR><TD>


</TD></TR></TBODY></TABLE>
I would think that what you have stated might be more true of the equities potential reaction.
Profit is where readiness meets Opportunity
  • #14
  • Nov 6, 2006 12:48pm Nov 6, 2006 12:48pm
A little side question, do you stay out of the markets on election days and or the following day?
  • #15
  • Nov 6, 2006 1:21pm Nov 6, 2006 1:21pm
true.. my opinion

if democrats win both
USD Long term bulish (not compare with some majors ..euro and gbp)
Gold not so bulish (no new wars )
Stocks that support their policy long bulish

...if republicans win both
USD Long term bearish (just look the wekly chart for past years...and ull know why)
Long term bulish gold
Stocks that support their policy ,...long bullish.

Volatility high either way,...
Low volatility only if both victorios

I will try open some short oil positions,...let the best party win.
Hope the left wing both
its just money
  • #16
  • Nov 6, 2006 1:28pm Nov 6, 2006 1:28pm
My vote - none of the above.

Politicans, not the results.

They are all the same.

Trade the market, not which jerk is in office.
  • #17
  • Last Post: Nov 8, 2006 8:15am Nov 8, 2006 8:15am
Well the stock market rallied b/c they like the gridlock forecast. I read on msn.com that the reason is b/c you dont have too much of either party's tendencies to emphasize different aspects of the government. Sounds like less market intervention by the govt.
Even if Democrats take control it wont be by such a large enough margin to make them very dominant so either way my opinion is bullish for the dollar based on the US stock rally this week.
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