It now seems that the polls got it all wrong again, and Donald Trump surged to a clear victory in the US election, with the Republicans also taking control of Congress, allowing them to implement their major policies. ‘Trump Trades’ came flooding back into the market yesterday as treasury yields and the dollar soared higher, US stocks rallied strongly, and Bitcoin hit record levels.
Currency Trades
The dollar, in general, should rally further in the days and weeks ahead as the FX world prices in more inflationary conditions in the US. However, there are some clear pairs that many traders will be looking at:
- USD/CNH: Trump has not been quiet about his plans to impose substantial tariffs on China, and there should be potential for most topside gains in this pair as the next few sessions unfold.
- USD/MXN: Mexico is also in Trump’s sights, and traders are expecting to see further downside for the MXN against the dollar and on the crosses.
- EUR/USD: The Euro could take a lot more pain for a few reasons. Not only will tariffs hit European goods coming into the US, but as the world’s most traded currency pair, it is vulnerable to more volume hitting it as a reflection of dollar strength.
Stocks
US Indices:
They have reacted well in the initial aftermath of the Republican victory, with surging moves—especially for financials, which should benefit from looser regulation. However, there is some concern that tech stocks, particularly those linked with China, could be in for tough times ahead.
Global Indices:
As with US stocks, it looks like being a case of picking and choosing strong sectors for the months ahead as Trump’s policies are implemented and their impact is felt. Clearly, Chinese and European bourses may struggle if tariffs are as hard as the President has promised.
Cryptocurrencies
Trump has been a strong advocate of cryptocurrencies, and they have surged since the result came through yesterday, with Bitcoin driving to new record highs. Investors are expecting crypto to remain in vogue both as currencies and from a stock perspective moving forward, and will be paying close attention to plans from the new government.
