Forex Today: Stocks Rebound From Sharp Losses as US Democrats Win Both Houses

Stock markets have fallen sharply as Democrats won control of both the House of Representatives and the Senate, but US equity futures have recovered sharply from their earlier lows. Nasdaq 100 Index futures fell more than 2% before cutting their decline to approximately 0.8%, while S&P 500 futures were around 0.6% lower. South Korean and Japanese stock markets notably followed the same pattern. This is a partial rebound within a volatile selloff, not yet confirmation that the correction has ended.

The Democratic sweep has changed the political backdrop for markets. President Trump will face opposition control of Congress, increasing the likelihood of legislative gridlock and greater scrutiny of his administration. Investors are reassessing the prospects for further fiscal stimulus and the regulatory outlook for technology companies. These are expectations about future policy, rather than measures already enacted.

Technology and AI shares remain the main pressure point. Investors are concerned that greater congressional scrutiny could complicate the data centre investment boom, at a time when spending commitments and valuations are already under examination.

The US Dollar and Treasury yields have fallen together. The greenback weakened against most major currencies as investors bought US government bonds, with the 10-year yield declining towards 4.89%–4.91%. Lower yields could eventually help equities stabilise, but they have not prevented the immediate election-driven retreat in risk assets. Traders should be cautious about assuming that the first election reaction will become a lasting trend.

In the Forex market, the EUR/USD has risen strongly today and may well invalidate the long-term bearish trend if it closes above 1.1300 at the end of today. For now, I remain short.

Crude Oil remains volatile after falling to a new 4-week low yesterday. Markets are balancing negotiations over the conflicts in Iran and Ukraine against continuing attacks that could disrupt supply. Monday’s dramatic decline removed a substantial part of the anticipated post-election war premium, but neither the election result nor ongoing diplomacy guarantees a settlement. WTI’s failure to recover securely above $100 remains relevant to the immediate technical picture. However, there seems to be an increasing feeling the USA/Iran war will not resume, and Trump is also signaling this.

Cryptocurrencies have also come under renewed pressure. The prospect of greater regulatory scrutiny following the election has added another headwind after the sector’s recent losses. Bitcoin’s former $80,000 support remains the first important level for a sustained recovery; until it is regained, the earlier bullish consolidation remains substantially weakened. A recovery in equity futures alone would not confirm a bullish reversal in crypto. Note that Bitcoin's short-term price action this morning looks very bullish, and it is threatening to break above $80k.

New Zealand unemployment exceeded expectations this morning. The jobless rate rose to 5.7%, its highest since 2015, against a forecast of 5.5%. Employment fell by 0.1% quarterly rather than increasing by the expected 0.4%. The figures support the RBNZ’s recent caution after its surprise decision to hold the Official Cash Rate at 2.75%, although they do not eliminate the possibility of further tightening. The New Zealand Dollar initially dipped, then steadied. The limited currency follow-through is worth noting: disappointing domestic data are bearish for the Kiwi, but broader US Dollar weakness is providing an offset.

The Bank of England’s decision tomorrow is the next major central-bank event. A 0.25% increase from 3.75% to 4.00% remains expected. As yesterday’s Australian Dollar reaction demonstrated, an anticipated hike need not strengthen a currency if the vote split or guidance reduces expectations for subsequent tightening. Sterling traders will be watching the policy outlook, not just the headline decision.