HomeContributorsFundamental AnalysisDemocrats Win Power, Capitol Hill Stormed

Democrats Win Power, Capitol Hill Stormed

The Democrats turned out in numbers on Tuesday and picked up two Senate seats in Georgia to flip the chamber and pave the way for a much-stronger Democratic agenda for the next two years. The somewhat surprising outcome propelled Treasury yields above crucial technical levels and gave a boost to the dollar but markets were riled when protestors stormed the US Capitol. The messages below are from Ashraf’s Wednesday insights to the WhatsApp Broadcast Group reitearing the short in gold and silver based on the recurring equidistant triple top in gold as outlined below. The Premium EURUSD long from 12060 fell short of its final 12350 target.

Democrats pulling into a 50-50 tie in the Senate effectively gives them control because the Vice President is the tie-breaking vote. In comments Wednesday, Democratic Senate leader Schumer confirmed that one of the first priorities will be $2000 stimulus cheques. That highlights that deficits will not be a priority for the US government any time soon.

That was reflected in 10-year yields, which rose 8 bps to 1.035% in a break of the 1% threshold for the first time since the start of the pandemic. That break led to some initial support for the dollar but it later faded.

Equities initially sold off before heading much higher. High spending from the Democrats ensures a faster recovery and stronger economic growth in the next two years. Fears of a corporate tax hike are overblown with far too many red Democrats in both chambers likely to oppose it.

That almost sets up a dream scenario for equities with high spending and little restraint. Some pockets like tech face more scrutiny but global equities will cheer the news. More broadly, this is likely to further usher in an era of high government spending globally, something that should underpin precious metals and crypto.

Mixed into the market reaction was serious concern after protestors stormed the US Capitol, sparking unbelievable scenes at the seat of the country’s government. Shots were fired and the scene remains volatile in what might be a preview of what’s to come; or come be the last gasp of Trumpism.

Markets shifted into a more-cautious stance after the scenes but we expect the scene to calm in short order and positive trends restored. If anything, governments facing instability are even more-likely to spending heavily.

 

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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