Nick Goold
The US midterm elections could bring sharp moves in USD/JPY, EUR/USD, gold and US stock indices. Much will depend on whether the results match what markets expect.
A result that matches expectations may cause little reaction, while a surprise could trigger larger moves. The first move may also reverse as more results come in, so traders should avoid rushing into a trade.
When will we know the results?
Results will come in from Tuesday evening, 3 November, US Eastern Standard Time (EST). In Japan, this will be Wednesday morning, 4 November.
Polls close at these times:
- Parts of Indiana and Kentucky: 6:00 pm EST / 8:00 am Japan.
- Many other states: 7:00–9:00 pm EST / 9:00–11:00 am Japan.
- California: 11:00 pm EST / 1:00 pm Japan.
- Most of Alaska: Midnight EST / 2:00 pm Japan.
- Remaining parts of Alaska: 1:00 am EST on 4 November / 3:00 pm Japan.
Alaska is the last state to close its polls, but we may know who controls Congress before then if enough other races are decided.
These are poll closing times, not times when winners will be announced. Close races could take days or longer to decide, and markets may keep moving while the outcome is uncertain.
What do markets expect?
As of 3 November, Polymarket gives Democrats approximately a 95% chance of winning the House, up from 92% a week ago, and a 78% chance of winning the Senate, up from 67%. These are separate odds for each chamber.
With expectations for a Democratic win rising over the past week, investors may have already adjusted their positions. An expected result could therefore bring a limited reaction. Republicans keeping the Senate would be a surprise, while keeping both chambers would be a much bigger upset.
For traders, the key is how the result compares with expectations. A Democratic win alone may not be enough to push prices much further in the same direction.
Democrats win both chambers
A Democratic Congress could make it harder for Trump to pass new tax cuts or spending plans. This could weaken the dollar, putting pressure on USD/JPY and supporting EUR/USD and gold. However, markets may already expect this result, which could limit the reaction.
Gold has already fallen significantly recently, so a recovery could be large if the result encourages buyers to return. USD/JPY has been trading in a small range. A break below 155 could lead to a much larger fall. If the pair rebounds but fails to get back above 155, there may be an opportunity to sell.
Democrats win the House, Republicans keep the Senate
A split Congress could make new tax and spending plans harder to pass. Stocks could rise as election uncertainty clears.
Republicans keeping the Senate could surprise markets and lift the dollar. USD/JPY could rise and gold could fall. If USD/JPY rises above 158, the risk of Japanese authorities intervening to support the yen could increase.
Republicans keep both chambers
This would be the biggest surprise of the main outcomes. Trump would have more room to pass new tax cuts and spending plans.
US equities could rise, as investors expect lower taxes to support company profits. The dollar could strengthen, pushing USD/JPY higher and EUR/USD lower. Gold could fall, with a break below support leading to more selling.
Results are delayed or too close to call
If the results are close, markets could move sharply as each race is decided. A result favouring Republicans could lift the dollar and US equities and push gold lower. The next result could favour Democrats and reverse those moves.
Early vote totals can also be misleading because some areas count votes faster than others. This means an early lead may disappear as more votes are counted, adding to the uncertainty.
In these conditions, avoid chasing sudden moves in USD/JPY, gold or US equities. If prices keep reversing, wait until the outcome becomes clearer.
Watch oil and the Middle East
There had been talk that Trump was delaying further attacks until after the midterms. That risk appears to have eased, but the situation remains volatile.
Further attacks or disruption to shipping through the Strait of Hormuz could push oil prices higher. If tensions ease or talks make progress, prices could fall as supply concerns fade.
Traders should keep watching the headlines, as developments in the Middle East could move oil regardless of the election result.
Watch Japan’s response to USD/JPY
Japanese Finance Minister Satsuki Katayama has said Japan and the US should keep working together on currencies regardless of the election result. She has also warned against sharp, disorderly moves.
If the election pushes USD/JPY higher, warnings or intervention from Japanese authorities could quickly reverse the rise. Watch for comments from Japanese officials as the election results come in.
Make the most of election volatility
The election could create trading opportunities across a wide range of markets, including currencies, gold and US equities. Mark the main support and resistance levels before results arrive so you are ready to act. You do not need to catch the first move. A pullback could offer a better entry, while a failed breakout could create an opportunity to trade in the opposite direction.
Plan your entry and exit, and allow for wider spreads and larger price swings. Also watch your overall exposure: selling USD/JPY while buying EUR/USD and gold means several trades depend on a weaker dollar.
Stay flexible as the results come in. Being prepared can help you take advantage of the volatility when a clear opportunity appears.
