Article by ForexTime

The dollar surged higher on Wednesday following the Republican Party’s huge success in the U.S. mid-term elections.  Interest rates diffferentials continued to move in the greenbacks favor following the surprise move by the Bank of Japan last week.  Historically, investors pile into US stocks following a Republican victory which should help the dollar gain further traction as investors flock to US assets.

USD/JPY led a dollar advance as the market continued to adjust to the Bank of Japans unexpected expansion in its bond purchase program last week, in addition to a broader dollar pop on news of that the Republican Party’s success in the midterm elections. The dollar’s gain correlated with a lift in U.S. Equity futures. Historically, fourth quarters of midterm election years has produced an average equity gain of 8% in the last 65 years, according to Stock Trader’s Almanac. USD/JPY notched up a new six-year high at 114.59, up a big figure on yesterday’s closing level.

U.S. mid-term election projections show that Republicans are forecast to hold their majority in the House, as expected, projecting a gain 242 seats compared to the 233 held currently in the 435-member body. A CNN poll projects that Republicans picked up W. Virginia and Arkansas in the Senate, while Senate Republican leader Mitch McConnell beat his challenger for the Kentucky seat. Obama is already extending an olive branch regardless of how the house of cards falls, with a bi-partisan invitation to leaders from both houses to meet on Friday at the White House.

The monthly chart of the USD/JPY surged to new 6-year highs and is poised to test the 124 level seen in 2007.  Momentum on a monthly chart turned higher generating a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.  The only caveat is that the RSI is printing a reading of 79, well above the overbought trigger level of 70 and could foreshadow a correction.

Article by ForexTime

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