The US dollar continues to edge higher, today hitting one-month highs above the 113.40 level in Tokyo afternoon as short-term traders and investors bought the greenback before the US mid-term elections. The factors that matter, including the recent US payrolls release with a headline of 250,000 which was much higher than the 190,000 forecast, have given the Fed more leverage and more cause for action in the coming months. With unemployment rates below 4.0% while job creation remains robust and hourly wages are rising, one would naturally think that the Fed will not be forced to pull back as President Trump suggests, but to charge ahead and keep their current hike trajectory in place.
These new buyers ran into a wall of sellers as some recent longs, mainly out of the US have been seen taking profit. Our charts and our view remain the same, 114.00 to 115.00 by January does make sense. At least that is what our charts are telling us, but more importantly, the strength of the US economy is not fading, at least for now. This suggests more hikes are on the horizon.
Why does the US election matter?
The trading and investing patterns of some Japanese investors in Tokyo trading hours have shown that they do care about the election. It plays out this way. Many market participants have become accustomed to the view that the Democrats will take the House. However, there is a growing view, from a small base, but growing all the same that the Republicans will not give up the House. Investors have been selling dollars on the back of Democrats winning the House, but now some Japanese investors believe that the Republicans just might win seats in the House and as a result are buying US dollars.