Fundamental Overview
Financial markets enter Tuesday’s session dominated by the US midterm elections, with expectations of a potential Democratic sweep of both the House of Representatives and the Senate.
Such an outcome could create significant political gridlock, complicating government spending, budget approvals and the administration’s policy agenda. Markets are attempting to price in different electoral scenarios before the results are confirmed, increasing the likelihood of volatility and unpredictable price movements.
The technology sector remains under pressure, particularly amid concerns about AI investment returns, corporate earnings and the sustainability of capital expenditure. Although the longer-term AI investment narrative remains intact, investors appear increasingly cautious.
Meanwhile, uncertainty surrounding Middle East peace negotiations continues to influence oil prices and broader risk sentiment.
On the economic calendar, US manufacturing PMI data has shown resilience, while today’s US job openings report will provide further insight into labour market conditions.
Attention will subsequently turn to the Bank of England’s interest rate decision on Thursday, alongside US unemployment claims, before Friday’s non-farm payrolls and unemployment report.
Risk Sentiment
Overall sentiment: Mixed, with a bearish bias towards equities.
US equity markets continue to experience selling pressure, particularly technology stocks, following several consecutive bearish sessions.
The S&P 500 remains within a broader sideways structure but is threatening to break below recent support. The NASDAQ has demonstrated more consistent weakness, although significant technical support could temporarily slow further declines.
Bond yields remain subdued, while the US dollar is showing selective weakness rather than a decisive broad-based trend.
This creates an unusual combination of potentially weaker equities, a weaker dollar and lower bond yields. Normally, dollar weakness and declining yields would be more supportive of equities.
With election uncertainty dominating market expectations, choppy trading conditions and sharp reversals remain significant risks.
Technical Overview
US Equity Indices
The S&P 500 is testing important support following yesterday’s trading within Friday’s range. A confirmed breakdown could create further selling opportunities, although nearby longer-term support may generate temporary rebounds.
The NASDAQ has experienced a more pronounced decline since last Wednesday and is approaching monthly lows alongside its 200-period daily moving average.
These levels represent significant potential support. A sustained breakdown would strengthen the bearish outlook, while a recovery could indicate a temporary reversal.
The preferred approach remains to identify selling opportunities following pullbacks rather than chase extended declines.
Foreign Exchange
EUR/USD remains under observation for continued dollar weakness, following yesterday’s opportunities.
GBP/USD is recovering towards recent highs, with existing positioning favouring sterling strength. The upcoming Bank of England decision could provide an additional catalyst if expectations support the move.
USD/CHF continues to develop a bearish structure, with lower highs and a failure of previous support supporting the existing dollar weakness trade.
AUD/USD has weakened despite the reported 25-basis-point Australian interest rate increase. A recovery from current levels, combined with renewed US dollar weakness, could bring the pair into consideration for a potential buying opportunity.
Gold
Gold briefly broke higher yesterday before reversing near previous highs around $3,975.
The failure to sustain the breakout has produced a potential bearish structural failure, with prices returning below the previous breakout area.
US Oil
Oil experienced a sharp decline towards $96 before recovering towards $99.
A stronger recovery above $100 could signal a potential structural reversal towards $103–$104. However, uncertainty surrounding Middle East negotiations continues to complicate the outlook.
Bond Yields
Government bond yields remain subdued and are approaching important support areas. Their behaviour will help determine whether the current divergence between currencies and equities persists.
Focus for Today
The primary focus remains potential further weakness in US equity indices, alongside the management of existing US dollar weakness positions.
Key considerations:
- Monitor the S&P 500 and NASDAQ for confirmed breakdowns or selling opportunities following pullbacks.
- Continue monitoring EUR/USD, GBP/USD and USD/CHF for further dollar weakness.
- Watch AUD/USD for a potential bullish reversal supported by interest rate expectations.
- Assess whether oil can establish a sustainable recovery above $100.
- Monitor election developments, US job openings and changing market reactions throughout the session.
With the midterm elections introducing substantial uncertainty, patience and disciplined risk management are particularly important.
The preferred approach is to understand the expected news outcome, wait for the actual information and observe the market reaction before considering execution.
The priority is not to predict every market movement, but to identify high-probability opportunities supported by fundamentals, technical structure and controlled risk.
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Risk Warning: Trading financial markets involves significant risk and may result in losses. This commentary is provided for educational and informational purposes only and does not constitute financial advice or a recommendation to trade. Always apply appropriate risk management.
