Trump's triumph in Iowa ignites Forex markets

After a slow start to 2024, Forex traders are finally waking up. Yesterday, the US dollar rallied against most of its peers, reaching new yearly highs. The dollar had the best headway against the Australian dollar and emerging currencies like the Mexican peso (USD/MXN) and South African rand (USD/ZAR). But not even the major FX pairs like EUR/USD and GBP/USD were spared.    
 

The uptick in volatility is encouraging, and we might see a multi-day trend emerging after 16 sluggish days. Read on to learn why the dollar gained and an overview of the markets to watch in the days ahead. 
 

Why did the US dollar surge today? 
 

First, the general mood in the financial markets was gloomy. People were selling stocks and buying dollars, creating a negative spiral that feeds on itself. There was no apparent trigger, according to the financial news, but the move could have started with ECB leaders telling us that the markets are getting ahead of themselves regarding the rate cuts priced in for the ECB. Additionally, last week, the US CPI was stronger than expected, causing rate cut expectations to temper as well in the USA. 
 

Donald Trump's landslide win in Iowa was a more subtle reason for the sell-off. While he has several legal proceedings against him, he was on course to win the Iowa caucus, with 51% of the votes, and only 21% for Ron DeSantis, and 19% for Nikki Haley. The victory will likely set a record in the Iowa caucus, surpassing George W. Bush's 41% in 2000. 
 

The effect of the vote is that analysts are now predicting that former President Trump will be the Republican candidate to go up against Biden in November. 
 

A change in president on its own will create market uncertainty and volatility. But Trump's way of negotiating adds a particular layer of uncertainty that the markets don't like. His protectionist trade policies and the risk of the USA leaving NATO are sure ways to spook the markets. Anyone who traded between 2017 and 2021 remembers how his tweets could start and end trends out of the blue. Seeing the currencies of open economies taking the majority of the brunt yesterday was therefore unsurprising.  
 

What markets to watch? 
 

EUR/USD breached a trendline and was, at the time of writing, near its yearly low. The short-term trend will remain downwards as long as we trade below 1.0957, and I suspect the interval from 1.09 up to 1.0957 is lined with sell orders. The next support level is 1.0850 followed by 1.0818, and 1.0778.  

USD/NOK reached a new yearly high yesterday and offers more to the upside given the lack of resistance. I suspect the price could reach 10.57 as long as we trade above 10.33, and that traders will be buying dips between 1.39 and 1.43.