US Dollar: Unexpected Election Outcome Could Trigger Unwinding of Long Positions

The major U.S. equity indexes rose on Tuesday despite predictions of heightened volatility if the Republicans lose their control of the House and the Senate in today’s mid-term elections. At the start of today’s session, the most major stock firms were predicting a split result where the Democrats win the House and the Republicans win the Senate.

In the cash market, the bench mark S&P 500 Index settled at 2755.45, up 17.14 or +0.63%. The blue chip Dow Jones Industrial Average finished at 25635.01, up 173.31 or +0.68% and the tech-based NASDAQ Composite closed at 7375.12, up 46.27 or +0.63%.

Strong performances by IBM and Caterpillar helped underpin the Dow. The S&P 500 Index was boosted by the industrials and materials sectors, which outperformed.

U.S. Economic News

It was a light day as far as economic data is concerned. The JOLTS Job Openings report showed 7.01 million jobs openings were added in September. This was lower than the 7.09 million estimate. However, the previous month was revised higher to 7.20 million.

The U.S. Labor Department report showed that despite the decrease, the level of openings still dwarfed the level of those considered unemployed, which was just under 6 million for September. The ranks of the unemployed moved up to 6.08 million in October, but the corresponding JOLTS data won’t be released until next month.

U.S. Treasury Markets

In perhaps another vote of confidence for the economy and a Republican Party Sweep, the yield on the benchmark two-year Treasury note rose to its highest level since 2008 on Tuesday.

The yield on the two-year Treasury note hit 2.924 percent, the highest level since June 25, 2008. The yield on the benchmark 10-year Treasury note settled at 3.212 percent, while the yield on the 30-year Treasury note dipped to 3.426 percent.

In other news, the Treasury Department auctioned $27 billion in 10-year notes at a high yield of 3.209 percent. The bid-to-cover ratio, an indicator of demand, was 2.54. Indirect bidders, which include major central banks, were awarded 73.8 percent. Direct bidders, which includes domestic money managers, bought 1.2 percent.

U.S. Dollar

The U.S. Dollar settled slightly higher on Tuesday after posting a primarily directionless trade. The small upside bias suggests that traders could be favoring a Democratic House victory.

A Republican sweep could mean increased trade tension and a larger deficit. If the Democrats sweep, they may roll back tax cuts and reinstate regulations that were eased by the Republicans and which helped corporate performance.

Most of all for traders, an unexpected outcome could trigger an unwinding of long positions on the dollar. This could trigger a steep break in the Greenback, while triggering a huge rally in gold.