Market Analysis: US Election Day
Today is America’s big day! During tomorrow’s Asian session we will be able to know the result of US election and whether Hillary Clinton or Donald Trump will be the next president of the biggest economy in the world. This event is getting great interest from market participants since it will set directly the short-term direction of the financial markets and indirectly the long-term direction of them. The forex market revealed its reaction to both of the US presidential nominees during polls publications and debates. For instance, when the FBI announced that it reopened the case of Hillary’s private email server investigation while she was performing as US Secretary, the investors kept a risk-aversion stance by shifting to safe-haven assets and currencies like the Japanese Yen and the Swiss Franc. Let’s take a closer look at forex market reaction to the two parties.
The Mexican Peso has been a popular proxy for the US election so far since Donald Trump stated his plans to take protectionist trade measures against Mexico. When polls and events that are published on media are in favor of Hillary Clinton, the Mexican Peso surges against the US Dollar. Conversely, when the publications are supportive of Donald Trump, we see the Mexican Peso sink. Examples of such events are highlighted in the below daily charts of USDMXN. On July 30th, September 26th, October 19th and November 7th fundamentals were released in favor of Hillary Clinton while on August 17th, September 11th and October 28th the releases were on Donald Trump’s side. It is obvious from the below chart that USDMXN tops on possible Trump’s election and bottoms upon possible Clinton’s election.
A Trump’s win would drive the financial markets to uncertainty since a new political method will be adopted by the new political party that Mr Trump represents. On the other hand, if Hillary Clinton wins, she is supposed to continue the current political direction for the US since she represents the same party with the current US President Barack Obama. Thus, Mrs. Clinton’s win is expected to be a continuation of the current flow and that abates markets’ uncertainty. Due to the risk aversion created upon Mr Trump’s election, the US Dollar may face a sharp upside rally on Hillary’s win and a sharp downside rally on Trump’s win. The upside rally on Hillary’s win is expected to last for a longer time frame as it was seen on Monday; when FBI’s president said that there are no clear evidence indicating Mrs Clinton’s guilt. As a result, the forex market opened with a gap favoring the US Dollar. On the other hand, when Mr Trump won one of the debates, the US Dollar did not fall significantly. Consequently, in case of Trump’s win, since uncertainty does not seem equal with greenback’s selling pressure, investors are expected to likely shift their attention to currencies like Great Britain Pound, Canadian Dollar, Japanese Yen and Swiss Franc either for carry trades strategies or hedging.
Safe Haven Assets
The market reaction indicates risk-aversion upon Donald Trump’s win and increased interest in safe haven assets such as Gold, Japanese Yen and Swiss Franc. The Japanese Yen is expected to surge on Mr Trump’s election since it is the most common safe haven asset used in risk-aversion strategies and times of market uncertainty. The Swiss Franc is also an asset used in uncertainty times; however the Swiss National Bank had already proven in the past that it is ready to take any measures possible to protect its currency value, in contrast with the Bank of Japan which seems to be out of solutions.
The Canadian Dollar is also a currency that is expected to be under selling pressure upon Donald Trump’s election. The reason behind our view is the big trade exposure of Canada to the US and the uncertain system that Trump would follow on the trading sector and his general protectionism views. In case of Trump’s win, one would watch closely the CADJPY and CADCHF pairs. In this case, the strong negative correlation between the possible fall of Canadian Dollar and the likely demand increase of Japanese Yen and Swiss Franc can drive the two pairs to new low levels of 75 and 0.70 respectively. A Hillary’s win is likely to increase the value of those two pairs and reverse their current downtrend.
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June 8, 2017
June 6, 2017