Election Impact on Key Markets: Analysing Gold, Oil, Nasdaq, Dow, and EUR/USD Trends

1)  Introduction

US Presidential elections have historically created uncertainty in financial markets, as potential policy shifts prompt investors to adjust their portfolios. Certain sectors may benefit more under new leadership, while increased taxes could dampen market sentiment, possibly causing stock indexes to dip temporarily. Conversely, economic stimulus could shift investor focus toward specific sectors. Below is a detailed analysis of how these factors shape investor behavior during election periods, with examples and data. Though policy changes drive volatility, studies show market returns in election years aren’t drastically different from other years. This can create opportunities for short-term traders looking to capitalize on election-driven market fluctuations.

2)  Assets examined

a)  Gold

On the XAUUSD weekly chart, Gold broke past the USD 2,108 resistance in March 2024, triggering a bullish run towards the USD 2,719 zone, fueled by central bank buying, Fed rate cuts, and global tensions. In the coming weeks, a break above USD 2,803 could target USD 3,245, while a failed breakout might lead to a pullback towards the USD 2,500 level.

b)  US Oil (Crude Oil)

The USOIL weekly chart shows strong support at USD 65.00, which has so far limited downside movement. However, crude oil has trended downward since April 2024, influenced by factors like the US election, the Israel-Iran conflict, and inconsistent OPEC+ production policies. The recent US Dollar rally has added pressure, curbing buying interest. A downside breakout below USD 65.00 could prompt a sharp move toward USD 25.00, while a hold above this support could trigger a rally back to USD 78.00.

c)   Nasdaq Index

From a technical perspective, the NASDAQ has remained bullish after breaking resistance at 16,928, now trading around 20,227, driven by factors such as the Fed rate cut and the AI boom. The potential breakout at 20,620 could propel the index towards 22,884, while failure to maintain the breakout may lead to a pullback towards 19,836.

d)  Dow Jones Index

From a technical standpoint, the Dow Jones has been in a strong bullish trend in 2024, fueled by easing inflation data after several months of surprises. A potential uptrend line rejection at 40,534 could trigger a rally toward 45,695, while a break below this level may push prices to 38,747, with market moves influenced by the Fed’s rate decision and election outcomes.

The Fed’s 25 bps rate cut to 4.5%-4.75%, following September’s 50 bps cut, aligns with forecasts. Trump’s win could drive stronger growth and inflation, potentially sustaining high rates, with 2025 tariffs adding pressure. This election outcome impacts EURUSD, which has stayed bearish around 1.0740 since early 2024. On the weekly chart, a bearish breakout below the uptrend line near 1.0850 could trigger a drop toward parity, while a failed breakout might push EURUSD up toward the 1.1700 resistance.

3) Assets compared in previous election years

Post-US elections, market behavior is influenced by policies, economic conditions, and sentiment, driving varying asset class trends. The general trends were rather acting in context with the market structure as well as the potential adjustments of the new administration. The 2008 crisis elevated Gold, while Oil crashed, and equities showed resilience. Over time, commodities like Gold act as safe havens, while the NASDAQ thrives during tech booms.

4) Conclusion

Election years have historically delivered positive results for stock markets, debunking the myth that they are typically bad years. While markets can experience volatility, calm investors have often found opportunities. Trump’s win could shift focus to tariffs and the oil and gas sector, but reduced support for Ukraine might impact defense stocks. Adapting to policy shifts and taking a long-term macroeconomic view is key.

The US Dollar showed strength leading into the election, but as the results settle, it may lose steam as markets adjust to the expected economic policies. Certain changes in policy adjustments of a new administration point to potentially interesting opportunities in various sectors.