Pepperstone logo
Pepperstone logo
  • English
  • 中文版
  • Ways to trade

    Pricing

    Trading accounts

    Pro

    Premium clients

    Refer a friend

    Active trader program

    Trading hours

    24-hour trading

    Maintenance schedule

  • Trading platforms

    Trading platforms

    TradingView

    Pepperstone platform

    MetaTrader 5

    MetaTrader 4

    cTrader

    Integrations

    Trading tools

  • Markets

    Markets to trade

    Forex

    Shares

    ETFs

    Indices

    Commodities

    Currency Indices

    Cryptocurrencies

    Dividends for index CFDs

    Dividends for share CFDs

    CFD forwards

  • Market analysis

    Market news

    Navigating Markets

    The Daily Fix

    Meet the analysts

  • Learn to trade

    Trading guides

    CFD trading

    Forex trading

    Commodity trading

    Stock trading

    Crypto trading

    Bitcoin trading

    Technical analysis

    Candlestick patterns

    Day trading

    Scalping trading

    Upcoming IPOs

    Gold trading

    Oil trading

    Webinars

  • Pepperstone Pro

  • Partners

  • About us

  • Help and support

  • English
  • 中文版
US

The Daily Fix: Bulls in full control as a blue wave takes over

Chris Weston
Chris Weston
Head of Research
8 Oct 2020
Share
It’s another good day for risk and equities have powered up. I took my US2000 longs too early and it has cost me, but if I look across the screens the bulls are in full control and the US2000 is breaking out.

Some talk of fiscal has been in play again, but this has become tiresome and the markets don’t need a reason to rally, they just don’t need to hear negative news. So, in the absence of any we see equities flying and US Treasuries offered – with the Treasury curve steepening 4.5bp. The USDX is unchanged and we’re seeing good buying in the MXN, SEK, NOK, ZAR and AUD. USDJPY has even made a higher high and broken out of its consolidation range and downtrend. Although, my preference is to wait for a re-test of the breakout levels and anyhow, USDJPY 1-week implied volatility is 4.9% which suggests a grind in price at best – akin to watching paint drying.

08_10_2020_DFX1.png

We’ve seen the thematic of reflation working with US ‘breakeven’ inflation +3bp, while copper is +2.2% and precious metals have caught a further bid, notably silver. The S&P 500 materials space has worked well, putting on 2.6% and continues to be a place I feel will outperform, along with industrials should the markets continue to see the current US political trends evolve. I still like long US2000 and short NAS100 as a pairs trade too.

In equity land, my momo and trend model has a fair amount of green and shows the upbeat flow here, but while the debate on a fiscal stimulus this side of the election rages on, the real question is whether markets are front running a ’blue wave’ scenario? And whether the market is less convinced we will see an ugly contested scenario.

The FOMC minutes delivered us little new news, but one thing is clear, many within the Fed’s ranks have incorporated $1t of fiscal into their models and subsequent economic projections and that is not looking too likely. One can assume this means more Fed action in December, especially if US economics does start to crack.

There was renewed dialogue between Mnuchin and Pelosi in US trade, with an airline bill central focus, which sounded encouraging, but it seems Pelosi was not that interested – again, going to my point yesterday that the DEM’s don’t want a deal.

08_10_2020_DFX2.png

The aggregated model on election dynamics is pulling further towards a convincing Biden win in the White House and an easy win for the House. I have no political allegiance, and it’s always important in trading to have an open mind. The lead in the national poll has widened post the first debate too over nine points and far surpasses the differential seen in 2016. Biden is pulling away in key battleground swing states like Florida, Michigan, Wisconsin, and Pennsylvania.

08_10_2020_DFX3.png

(Source: Realclear)

Many have pointed to the fact that in 2016 20% of the voters didn’t really like either Trump or Clinton and nearly two-thirds sided with Trump. How many of these will remain loyal? The pollsters see a far lower prospect of polling error this time around for multiple reasons, but there are reasons to believe this will not be 2016 when we look at polling and other data.

Consider when the likes of FiveThirtyEight come up with a probability (currently 84%) they run 40,000 (Monte Carlo) simulations of state elections to assess the distributions and probability of the outcome. In 2016 they had a 30% probability of Trump winning, which was far higher than other models. They obviously don’t have a crystal ball, but this is the outline by how they come to these numbers and the market can use them as a guide to help price risk. It may well prove to be wrong and it's healthy to not blindly follow them, but to dismiss them seems incorrect and it seems the market is certainly watching these models closely.

The Senate is really interesting and the REP will want to defend this with everything they have. Not least because if this goes to the DEMs then it will mean the passage of some of Biden’s more liberal and further left-leaning policy promises will be enacted. As things stand, the REP has 53 (of 100) seats. For background, not all 100 seats are to be contested, but this time around 35 Senate seats are to be fought, with 12 of those currently held by the DEMs and 23 by the REP’s. The pollster’s models have the DEMs winning five seats, although if Biden gets the WH they only need four as VP Harris will get casting vote during voting sessions. In FiveThirtyEight’s simulation (again there cast 40,000 simulations), we see a normal distribution, with the probability skewed for the DEMs to get 51 seats. Let's see, but again statisticians will never say they can see the future, but they run scenarios and there is a method behind this.

One to watch, but it feels like the market doesn’t care about fiscal now, they know it's coming regardless, and they know more central bank action is likely too. Momentum and trend are all the rage. Onto the VP debate at 12:00pm AEDT.


Related articles

How to trade gold into the US presidential election

How to trade gold into the US presidential election

Gold
The Daily Fix: Trump walks away from Fiscal, but did he really have a choice?

The Daily Fix: Trump walks away from Fiscal, but did he really have a choice?

US500
US

Most read

1

The disinflationary message seen in commodities and rates markets

2

Will the BOJ be the last dovish domino to fall?

3

Trader thoughts - the conflicting forces dictating EURUSD flow

Ready to trade?

It's quick and easy to get started. Apply in minutes with our simple application process.

Get startedSubscribe to The Daily Fix

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to trade

  • Pricing
  • Trading accounts
  • Pro
  • Premium Clients
  • Active Trader program
  • Refer a friend
  • Trading hours

Platforms

  • Trading Platforms
  • Trading tools

Markets & Symbols

  • Forex
  • Shares
  • ETFs
  • Indices
  • Commodities
  • Currency indices
  • Cryptocurrencies
  • CFD Forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Pepperstone Pulse
  • Meet the analysts

Learn to Trade

  • Trading Guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
1300 033 375
Level 16, Tower One, 727 Colins Street
Melbourne, VIC Australia 3008
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Whistleblower Policy

© 2025 Pepperstone Group Limited

Risk Warning: Trading CFDs and FX is risky. It isn't suitable for everyone and if you are a professional client, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your personal objectives, financial circumstances, or needs. You should consider whether you’re part of our target market by reviewing our TMD, and read our PDS and other legal documents to ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice if necessary.

Pepperstone Group Limited is located at Level 16, Tower One, 727 Collins Street, Melbourne, VIC 3008, Australia and is licensed and regulated by the Australian Securities and Investments Commission.

The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

© 2024 Pepperstone Group Limited | ACN 147 055 703 | AFSL No.414530