How the 2024 US Election Could Shake the Forex Market
Volatility, Trends, and Strategies to Watch
The 2024 US presidential election is shaping up to be one of the most influential events for the global financial system, and the Forex market is no exception. This post will explore how the 2024 US election could shake the Forex market, key events traders should monitor, and practical strategies to consider for navigating heightened volatility. Elections—particularly in powerful economies like the United States—tend to increase uncertainty, which is a primary driver of currency volatility. With political and economic unpredictability at an all-time high, traders are scrambling to prepare their portfolios. Every new poll, policy shift, and geopolitical development is shifting market sentiment, making it critical to stay ahead of potential movements in key currency pairs.
We’ll also dive into how other global elections—such as those in Japan and Mozambique—add another layer of complexity. Finally, we’ll touch on how crypto prediction markets are offering fresh insights into potential outcomes and trading sentiment.
US Election 2024: Currency Markets in Focus
The Forex market thrives on uncertainty, and the 2024 election cycle is no exception. Traders are witnessing increased volatility, particularly in key currency pairs such as USD/JPY, EUR/USD, and USD/CHF. A large number of traders are moving toward safe-haven currencies like the US dollar (USD), Swiss franc (CHF), and Japanese yen (JPY) to hedge against potential risks. At the same time, gold is also seeing a surge in interest as investors seek to protect their capital from market fluctuations.
Political uncertainty tends to drive sudden market movements, and the outcome of the US election will likely determine the trend for the dollar and other major currencies for months to come. Here’s a closer look at the potential impacts of different election scenarios.
Potential Impact of the Election Outcome on the Dollar
1. A Trump Victory: A Stronger Dollar with Fewer Rate Cuts?
If Donald Trump wins the election, markets may expect higher tariffs, particularly on global trade partners like China and Mexico. These tariffs could boost the dollar by driving demand for USD-based assets, as investors seek safety in the most liquid currency during periods of economic disruption. Additionally, Trump’s policies could reduce the likelihood of interest rate cuts from the Federal Reserve, which would tighten monetary conditions and further strengthen the dollar.
How to Navigate:
- Consider going long on USD/JPY or USD/CHF, as these pairs tend to perform well in periods of dollar strength.
- Monitor tariff announcements closely and adjust positions involving trade-related currencies like the Mexican peso (MXN) or Chinese yuan (CNY).
2. A Harris Victory: A Weaker Dollar with Accommodative Policies?
In contrast, a victory by Kamala Harris could lead to more accommodative monetary policies. Markets might anticipate increased government spending and looser fiscal policy, which could weaken the USD. If the Fed signals additional rate cuts, the dollar is likely to decline against major pairs such as EUR/USD or GBP/USD.
How to Navigate:
- Consider shorting USD pairs like EUR/USD or GBP/USD, expecting dollar weakness.
- Stay informed on the Fed’s outlook, as dovish policies could reduce USD liquidity, creating opportunities to trade on a weaker dollar.
Global Market Influence: Beyond the US Election
The impact of the 2024 US election goes beyond America’s borders. Traders are also closely monitoring other key elections around the world, which may further complicate the already volatile Forex market. For example:
- Japan’s election on December 7th could influence the yen, especially in pairs like USD/JPY or EUR/JPY.
- Mozambique’s presidential election on October 15th is also of interest to traders dealing with exotic currencies and emerging market strategies.
These elections, combined with the outcome of the US election, could introduce new risks and opportunities in the currency markets. It’s essential to monitor how global policies interact with the next US administration’s trade and economic policies.
Crypto Prediction Markets: Fresh Insights into Sentiment
Prediction markets, particularly crypto-based platforms like Polymarket, are increasingly being used to forecast election outcomes. Large wagers on Trump’s victory have been observed on these platforms, with many of these bets reportedly coming from non-American accounts. These unconventional markets are providing a unique lens into trader sentiment and potential outcomes, allowing savvy Forex traders to align their strategies accordingly.
The growing popularity of crypto prediction markets reflects a broader trend of traders seeking insights from non-traditional sources, which could be a valuable tool during volatile periods.
Current Market Sentiment and Polls
As of October 25th, 2024, FiveThirtyEight’s election tracker shows Kamala Harris leading Donald Trump by 1.7 percentage points. While voter turnout appears lower than in 2020, more than 30 million Americans have already cast their ballots through early voting. Market participants are watching these numbers closely, as well as the VIX index, which remains well above its 2024 average. This indicates heightened expectations for volatility, particularly in the lead-up to election night.
Forex Trading Strategies for Navigating Election Volatility
With heightened volatility in play, traders need to stay flexible and ready to adjust their strategies as new information emerges. Here are some key strategies to consider during the election season:
If You Expect a Trump Victory:
- Long USD Positions: Consider going long on USD/JPY or USD/CHF, as these pairs benefit from dollar strength.
- Trade-Related Currencies: Monitor developments related to tariffs and adjust positions on MXN and CNY accordingly.
If You Expect a Harris Victory:
- Short USD: Consider shorting the USD against currencies like EUR or GBP, anticipating accommodative policies.
- Fed Monitoring: Follow Fed announcements closely to position for potential shifts in USD liquidity.
Additional Elections to Watch:
- Japan: Pay close attention to how the Japanese election affects JPY crosses like USD/JPY.
- Emerging Markets: Track elections in Mozambique and other emerging economies, as they may impact exotic currency pairs.
Key Takeaways: Forex Strategies for Election Volatility
- Volatility Will Persist: Fluctuations in currency markets are inevitable before, during, and after the election.
- Safe-Haven Currencies Will Dominate: Expect increased demand for USD, CHF, and JPY.
- Global Elections Matter: The outcome of Japan’s and other elections could create additional opportunities or risks.
- Combine Technical and Fundamental Analysis: Use news events alongside technical setups for better decision-making.
By staying informed and flexible, Forex traders can position themselves for success during this volatile period. Whether you’re betting on dollar strength or preparing for accommodative policies, a well-thought-out plan will help you seize opportunities while managing risks.
Read:
The Return of the Trump Trade: How Election Risks Are Steering the Markets
Find us on YouTube
For information on our Options Program
Watch our YouTube Psychology Corner Videos
Read about the Psychological Traits of Top Traders
