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  • Silver is in the hands of the US elections and price action in the US dollar.
  • The race is tight and subject to the result being contested through the courts.
  • Risk is firmly banking on a Biden victory, but there are implications of the Republicans holding the Senate and of a contested outcome.
  • Technically, XAG/USD is on the verge of offering a high probability bearish trade setup.

It has been a roller coaster US election and a much tighter race than the markets had priced for and the dollar has been thrown around between 94.20 and 93.05 which has been an influence on the precious metals. 

Silver has been moving between 23.9202 and 24.5048, down some 1.30% at the time of writing, clinging on by the skin of its teeth around important resistance structure on the 4-hour charts. More on that in the technical analysis below. 

As of this moment, the most reasonable scenario appears to be a narrow Biden victory as the counts keep coming in, tipping the balance of the Electoral College vote in the Deonctractic Party’s favour.

The latest projections show that with 440 electoral votes allocated as of 1710 GMT, Biden has 227 and trump has 213; 270 needed to win the presidency, according to Edison Research.

However, risk appetite has firmed in recent trade, with the higher beta currencies, such as the Aussie, taking on fresh highs vs the US dollar and the yen. 

If Biden wins, it will be narrow and a result that will probably be contested with a Republican Senate. 

That is a different outcome for what markets had expected, with the base case assumptions of a Blue Wave and a fast post-election fiscal package. 

However, sentiment got a lift today and stocks were boosted to a session high after Mitch McConnell, elected again for another term for Kentucky and Senate Majority Leader, said a stimulus bill is possible before the end of the year. 

Meanwhile, the incumbent US President Donald Trump has made enough remarks for passing a clear message to the markets that he absolutely intends to challenge the ongoing vote counts.

The latest came from the Trump Campaign that states it will ”immediate” request a recount in Wisconsin. 

President Trump has already won a series of key battlegrounds, including Florida, Ohio and Iowa.

as Joseph R. Biden Jr. spoke to the nation and said he would ultimately prevail across key Northern states and Arizona.

Major risks for markets

This state-by-state slog is expected to drag deeper into the week and still poses a major risk for markets.

”It is curious that risk sentiment is holding in as well as it is given this scenario was generally seen as potentially the least risk positive given the likely difficult in getting Phase 4 passed in the lame-duck session,” analysts at TD Securities explained.

”We suspect markets may be more patient if this proves to be an election that is contested only in the courts, but if that spills over to being contested in the streets, that is more likely to be the trigger for negative risk sentiment across various markets.”

We have already seen pockets of protesters in Washington, Los Angeles, Raleigh and Portland take to the streets amid the Election Night vote tallies with emotions flaring and dozens of arrests reported.

Tempers flared as the evening wore on and they could be set to get a lot worse if President Trump continues to add fuel to fire in additional statements to his earlier claimed, saying that he thinks the election is rigged, challenging Biden’s slight lead in the race despite several key states remaining to be counted.

“This is a fraud on the American public. This is an embarrassment to our country…Frankly, we did win the election,” Trump claimed.

It’s unclear whether his comment caused protests to escalate.

”Apart from the election itself, COVID cases are rising, and while lockdowns seem less likely in the US, it could affect economic activity and consumer behaviour,” the analysts at TD Securities added. 

The analysts are also cautious that despite a Biden victory, ”with the likelihood of a Republican senate, US gridlock seems like a more plausible outcome, which does not bode well for a very large fiscal package anytime soon.”

The analysts also expressed their concerns that ‘in the interim and the absence of a fiscal package, ”COVID could easily gain more attention”. 

”That has us thinking that the USD might be more resilient tactically, or until a transition in government takes place and/or recount risk subsides.”

This leaves the precious markets vulnerable and would tie in nicely to the following technical analysis that was first put in motion, here.

Silver technical analysis

From a daily analysis, the 4-hour chart can be monitored for a bearish environment and optimal entry to take advantage of the bearish bias below a critical resistance structure. 

4-hour chart

The 4-hour time frame is yet to confirm a bearish environment with MACD still above zero and the price barely below the 21-moving average. 

However, on a clean break to the downside, the resistance structure left behind would be expected to offer a discount to bears on a re-test.

Thus, such a scenario will be offering a high probability and favourable risk-reward trading set-up for those brave enough to face the volatility of a drawn-out contested election in the courts that could last for weeks.