US elections 2024: ‘Trump trade’ at play as vote-counting gets underway

Overview

While the US elections are still too early to call at current point in time, markets have been getting ahead to price for the Trump playbook in the likes of 2016. Treasury yields and the US dollar surged higher, reflecting mounting expectations that Trump’s inflationary policies may materialise. The US 10-year yields surge 18 basis point (bp) in early trading, while the US two-year yields are up 10 bp. All is not over, with further conviction of a ‘Red Wave’ ahead potentially seeing yields eyeing further upside, which may translate to a stronger US dollar.

US small-cap equity futures revealed an outperformance, being the beneficiaries from Trump’s "America First" policies and deregulation stance. In the Forex (FX) space, USD/MXN is up more than 3%, USD/JPY is up 1.4%. Other USD crosses were under pressure, with AUD/USD, EUR/USD and GBP/USD all down more than 1%. There are positive moves in the cryptocurrencies space as well, with Trump’s pro-crypto stance helping to lifting Bitcoin to a new record high.

These moves are not without basis. Early indications suggest that Trump have performed better-than-expected in areas where Republicans have not been so well-supported traditionally. While we can still argue that markets could be getting ahead of themselves to price for a Trump win, ongoing votes suggest that Harris has a narrower path to victory.

The hopeful path for Harris will be to reclaim all traditional Midwest battlegrounds (Michigan +15, Wisconsin +10, Pennsylvania +19), which will potentially offer her the exact amount of votes to secure her victory. This is provided that other traditionally Democratic states do not budge. Any turn of events from market expectations for a Trump win could be a surprise and drive huge reversals in markets, particularly in the US dollar.

US dollar index: gaining steam on expectations of a Trump win

The US dollar has surged close to 1% in today’s session, reversing all of its last week’s losses. The US dollar has been a beneficiary for a Trump win, with many of his policies around trade, immigration and spending deemed as relatively more inflationary.

A bounce off its 200-day moving average (MA) may seem to bode well for the US dollar’s upward bias, as its daily moving average convergence/divergence (MACD) continues to trade above the mid-line following a positive crossover on 1 October 2024. Ahead, the 105.32 level could be on watch next, where a trendline resistance will be retested.

Hang Seng unwinds all of its previous day's gains

The HSI is down 2.7% in today’s session, having unwound almost all of its previous day’s gains. Trump’s aggressive protectionist measures may be deemed to have a negative impact on trade activities with key trading partners, particularly with China in his crosshair. Much is still trading within a near-term consolidation pattern for now, but the 20,300 level will be put to the test, with any breakdown potentially unlocking fresh selling pressures to the 19,500 level.

EUR/USD: attempting to defend upward trendline support

The EUR/USD has also seen some weakness in today’s session, as Trump’s trade policies around tariffs or restrictions on European goods could dampen Eurozone economic growth, hence weakening the euro. For now, buyers are attempting to defend a crucial upward trendline support at the 1.077 level, which may be key in keeping the broader upward trend intact. Failure to do so could see the pair head towards its June 2024 low at the 1.066 level next.