USD Price Movement – Elections and Wars

USD Price Movement – Elections and Wars

Since the inception of electronic retail trading in 1999, it has been a staple to investors in the currency market. The internet age has brought upon a balance between fundamental and technical data. Talking about fundamentals, let us take a step back in history to check and understand the results of geopolitical events of the past 20 years for the US Dollar.

Figure 1 – EURUSD Monthly Chart

On Elections

The US Elections is one of the most highly volatile events in the history of mankind. Being a global economic superpower, the USD has been considered to be a safe haven for investors – at least for most of them. Which begs the question: What do investors look for with the US Dollar, fundamentally?

The Red Vertical Lines in figure 1 indicate a change in administration. Here are some facts pertaining to the administration changes. You’d notice that in Table 1 below, all democrats ended their terms in a bearish trend for the EURUSD, and bullish on the Dollar Index. The Dollar Index, in Figure 2, is a tool to measure the value of the US Dollar against a basket of Six (6) Currencies including the EURO, Swiss Franc (CHF), Japanese Yen (JPY), British Pound (GBP), and the Swedish Krona (SEK). This basket provides investors with a guide on how the US Dollar performs globally. Both the index and EURUSD are inversely correlated since the EURO was institutionalized in the EU. Learn more about currency correlations here.

Table 1 – US Administrations since 1993 and their results on the currency

Figure 2 – US Dollar Index & EURUSD

On Wars

The United States has been very upfront with its stance of global security against terrorism. This only meant that the US will be at war somewhere. Here are some of the wars that involved the USA as part of their “War on Terror” Campaign:

  • 2001 - Afghanistan
  • 2003 - Iraq
  • 2011 - Libya
  • 2015 - Syria

Looking at Figure 1, we have noticed that the War in Afghanistan and Iraq gave the USD a bearish index, and is bullish to EURUSD. The Afghan War caused the EURUSD to go bullish from its previous low (First Yellow Vertical Line) followed by the Iraq war which fueled a boom in the value of the EUR – leading up to a 20-year high. This also happened during the term of a republican, George H. W. Bush.

The opposite can be said of the Syrian and the Libyan Wars as both had a bullish impact on the EURUSD Chart at first, but eventually reversed in the long term. This can be attributed to a democrat running the country in the person of Barack Obama. While Donald Trump did not start any new wars in his 4-year term, he was part of the Republican Party.

In essence, wars are generally bearish for the US Dollar. Its effects are dictated by the party affiliation of the sitting president.

What to expect

The conflict has always followed the strong, hence it would not be surprising if a new war sprouts somewhere. We can expect Joe Biden’s presidency to cause the USD to remain stronger in the next 3-4 years - which may continue depending on the results of the next elections in 2024. 

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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