Originally published by AxiTrader
Quick Recap
Baton down the hatches folks the US election just got more interesting for traders and markets, which had essentially discounted any chance of a Trump victory to a negligible probability.
That's particularly important for the Aussie dollar, which historically performs poorly during periods of risk aversion such as we may face if traders become fearful of the impact of a Trump victory at the November 8 election.
We already had a small window into that on Friday with stocks, the US dollar, and bonds all lower.
What You Need To Know
Any long term chart of the Australian dollar will show the relationship between its movements and risk appetite and risk aversion. It's why when I distill all the myriad drivers for the Aussie dollar down to 5 core components "risk appetite" is one of the five.
I raise this today because of the potential impact these new allegations about Hillary Clinton's use of a private email server could have on the results of the US presidential election.
As I noted earlier today from here on the East Coast of Australia it seems an almost trivial concern when compared to Wikilieaks, Edward Snowden, Chinese hacking and other revelations about US data security in recent years. But from a behavioural point of view the revelations play to Trumps narrative and as such traders will be thinking, or at least wondering, if the election is now likely to be closer than they previously thought.
Now we know that many traders are worried about what a Trump presidency means. And even if you think, as I do, that the reality is likely to be less scary than many fear, the reality is that there is a real fear in markets of the uncertainty that Trump could bring as POTUS.
That matters for the Aussie dollar if that fear morphs into stock selling, bond and gold buying in the days ahead. Indeed fox news tweeted this morning that Trump is ahead in the battle ground of Florida.
This is all by way of explanation why the Australian dollar may not materially strengthen if the US dollar weakens against the Euro, CHF/USD, and the Yen in the days ahead. Equally it's why the Aussie may lag even though in Investing.com USD Index terms it looks like a top may be in place.
Traders know the 77 cent zone has a wide range of sellers and on Friday night the buyers respected the uptrend line from the lows this year with a low of 0.7555. But a break of 0.7550 could open the way for a run all the way back to range support at 0.7450 which must hold if a deeper retracement is not to begin.
Have a great day's trading