On Wednesday, January 7, President Donald Trump gave a speech, which eventually led to a riot. The President told supporters to March on the Capitol, which houses legislators, including the House of Representatives and the Senate. While not successful, this effort to overtake the government was similar to how Julius Ceasar crossed the Rubicon, precipitating the Roman Civil War that marked the republic's end. Right-wing protesters led the insurrection cheered on by Trump's lawyer, Rudy Guliani, who called for "trial by combat" firing up the mob. The scenes from the Capitol building will live on in infamy. Videos of the angry mob storming the capitol and fighting with police eventually took 5-lives. Pictures of individuals sitting in the chair of the Speaker of the House will never be forgotten. While frightening, the riots have not has a profound impact on the forex markets. The trend in the dollar has been temporarily reversed as positive momentum gains traction.

 

Why Did This Occur?

President Trump was so angry that he lost reelection that he refused to accept the results. Instead of helping the United States heel, he fought and spread lies that the election was stolen by easing into a transition of power. The President filed 62 court challenges to the election results and lost 61-cases. After failing in court, the President challenged Georgia's results by demanding that the Secretary of State of George change the vote count. The recording of the President’s phone call was released to the Washington Post and eventually release to the public. On the call, you can hear the President demanding that the vote count be changed. He said I want to find 11,780 votes, pressuring pressures Georgia secretary of state to recalculate the vote in his favor. 

This demand on its own would be enough in normal times to impeach a President and remove him from office. But these are not normal times in the United States. President Trump's pressure tactics did not work, and he decided to take it a step further.

 

What Happened Next?

It took hours, as the President refused to let the national guard help the capitol police defend the Senate and the House of Representatives. The members were in full session as of January 6, which was the day the lawmakers confirm the elector college vote. The insurgent was there to hurt or kill House Speak Nancy Policy and vice president Mike Pense. Pense refused to grant the President’s wish to halt the vote.

In the wake of the attack, Vice President Pense has not spoken with the President as the House of Representatives moves forward with a second impeachment. Many leaders believe that President Trump should be removed from office before President-Elect Biden's Inauguration on January 20. There are concerns that the President will do something unhinged during the remaining days in office. Additionally, there has been chatter that the radical right is likely to attack Washington D.C. during President-elect Biden's inaugural. While the secret service is prepared and will not make the same mistakes as the Capitol police, another insurgence on the Capitol will not be suitable for democracy.

 

Social Media Enters the Fray

On Friday, January 8, Twiter decided to permanently ban Donald Trump for insighting a riot and insurgency. After reviewing his recent Tweets, the account permanently suspended the account due to the risk of further incitement of violence. Since Twitter is a public company, there is nothing immediately the President could do to reactivate his account. This was followed by moves from Facebook, which also took down the President's account. There is an alternative used by conservatives called Parlor. Unfortunately for the President, Parlor was immediately taken off the Apple App-store and Google Play. Parlor was also removed from Amazon AWS, taking away the company’s ability to function. 

 

How Has This Event Impacted the Capital Markets?

Despite the chaos created by the President, riskier assets have remained buoyed. Yields have started to back up, lead by gains in the U.S. 10-year yield. Ahead of the rancor that appears to have peaked on January 6, 2021, the dollar was in a downtrend. U.S. yields seemed to have bottomed despite weaker than expected data that was released for December. If U.S. yields continue to back up, they will eventually impact the yield differential, which is the driving force behind trading forex. The Fed is likely to continue to add 120-billion in quantitative easing per month, which should help keep the U.S. dollar from rallying. This Fed action and additional U.S. fiscal stimulus will also help the EUR/USD remain buoyed. 

 

The technicals

The technicals on U.S. yields have been positive, which has helped cap the EUR/USD's upward movement. The EUR/USD has tested a 33-month high and is pulling back, poised to test support near the 10-week moving average at 1.2095. Target resistance in the EUR/USD currency pair is seen near the 2018 highs at 1.2550. Short-term momentum has turned negative as the currency pair's fast stochastic has turned negative in overbought territory. The current reading on the fast stochastic is 83, above the overbought trigger level of 80, foreshadowing a correction. Medium-term momentum is poised to turn negative as the MACD (moving average convergence divergence) index is about to generate a crossover sell signal. The trend remains upward sloping, and a test of resistance is likely in the cards.

 

 

The Bottom Line

The chaos created by the attacks on the U.S. Capitol has generated very little volatility in riskier assets. Ahead of the Capitol's episode, the dollar was trending lower, and this long-term trend will likely continue in 2021. Despite political instability in the U.S., what has occurred has been a rise in riskier assets and an increase in yields. Rising yields could be a function of distrust in the U.S. government, but with a new administration coming in and democratic control of the Senate and House of Representatives, this scenario should quickly come under control. Despite a change in momentum, the dollar trend is lower, which is likely to see a short-term change in direction.