How Will Barack Obama Affect the Global Markets?

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After an anxious wait of two months, President Elect Obama will take the oath of office on Tuesday, to uphold the constitution, becoming the 44th president of the United States of America. Entering the position will surely not be an easy task, as U.S citizens are now looking more than ever, for an avant-garde, someone to lead their economy back to prosperity. Even though the U.S senate voted to allow the release of $350 billion last week, aimed at aiding the financial market, investors are still acting cautious about this one-off plan, knowing that recent economic instability will most probably require additional fiscal and monetary actions by the new president. Over the weekend two additional banks were closed by regulators, as the financial-tsunami-of-destruction took further victims, increasing the number of bankrupt banks to 27, since the start of the current slowdown. In addition, similar to the U.S, economic data across the globe didn’t show much of a different picture. Inflation in the U.S increased by the lowest figure in 54 years, while European officials gave into economic pressure, reducing their central rate to only 2%. While the ECB is still presenting a relatively high yield compared to other economies, expectations of further rate cuts are driving down consumer confidence, as investors realize that European economies could be in for a long and hard recovery.

Continuing over to Asia, Japan’s economy has gone bad to worse as a high valued Yen and deteriorating exports caused by a global slowdown, have forced the BOJ to reduce its central rate to merely 0.1%. Economic growth has gone down the drain, and similar to other economies Japan is now battling ongoing problems. Taking a glance at the chart below, one can see that high unemployment, decreasing inflation and slow economic growth is now characterized throughout most of the major economies.

Even though we witnessed a minor rally on the major indices and certain currency pairs throughout the beginning of January, bulls have failed to keep the rally going sending prices back into consolidation areas. Eyes will now be focusing on the new president’s actions. Will Obama provide the goods allowing investment routes to return to their normal state?
When taking a look at the chart below one can see that U.S bond purchasing (safe assets) have begun to decline. Friday’s chart formation of a lower-high on the 20 year bond fund was also characterized by a large decrease in market volatility.

*courtesy of stockcharts.com
What does this mean for stock and currency traders?
The U.S indices are now located at critical levels, trading around prior support. Even though investor’s appetite for riskier assets is beginning to increase (Friday’s intraday action showed a sharp reversal accompanied by increasing volume), caution should still be taken on various trades. When analyzing the S&P500 chart more thoroughly one can see that while a market bottom seems to be forming, current levels will only hold if investors believe in Obama’s promises/policies, something that will only be tested after he is sworn in.
On the currency market Carry Trades are now presenting interesting setups, correlated with the U.S stock market. Chart analysis shows that certain pairs have now formed a higher-low while others have bounced off of daily support, pushed higher by traders that are slowly seeking riskier opportunities. While on both markets it is advisable to wait for confirmation on the charts, to avoid whipsaws, both investors (stock and Forex) should observe price action this week as a new president could surprise the economy for the better or for the worse.
S&P500 –Daily Chart

*courtesy of stockcharts.com
USD/JPY – Daily Chart

*courtesy of netdania.com
AUD/JPY- Daily Chart

*courtesy of netdania.com
EUR/JPY- Daily Chart

*courtesy of netdania.com

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