Monthly Hot Topic – the Dollar, the Peso & the US Elections

November 4, 2016

October began in high drama with the flash crash of the pound on the 7th sending it to 31-year lows against the US dollar. The rest of the month saw dollar strength in general and the /US markets react to a series of US Presidential debates.

Let’s take a look at how the dollar has been performing in the lead up to the elections.

After the first debate on 26 September where Clinton was considered the winner over Trump, the dollar dropped while equity markets rose and the Mexican peso rose. A clear favourite of Wall Street, Clinton is considered the conservative candidate with Trump classed as the unpredictable outsider. And markets don’t like unpredictability.

The US Dollar is a safe-haven asset, so in times of uncertainty it tends to gain. In times of confidence investors tend to buy stocks and sell Dollars. And that’s what we saw happen after the debate, confirming that the markets prefer Clinton. Meanwhile, the peso rose on a positive Clinton result due Trump’s comments about building a wall across the US and Mexican border to keep out illegal immigrants.

On the 9th of October we had the second debate and Clinton was even more clearly ahead. Following the pattern of the first debate, the S&P 500 rose 0.52% and the peso hit a one-month high. The US dollar dropped 1.8% against the Mexican peso in Asia trading and US dollar to Canadian dollar fell 0.3%.

Let’s look at a trade example from all this price action. If you were trading the MXN at the time, here’s what you might have made.
If you had sold USD/MXN before the end of Friday’s, October 7th, trading session at 23:00 GMT with an investment (or amount to risk) of $500 the open price would have been 19.2893 – and if you’d bought it at the beginning of the October 9 trading session at 01:00 GMT when the price nosedived to 18.9502, you might have made $1,789assuming that you have been leveraged with 1:200. More than tripling your money during the weekend with no trading activity isn’t bad at all! Note that this example does not take into account spread and the use of leverage means that you not only magnify the potential to profit but also to lose.

Now let’s look ahead to the rest of the month and see what the big movers for November might be.

Tuesday 1 Nov
BOJ Interest Rate announcement 03.00 gmt
RBA interest Rate decision 03.00 gmt

Wednesday 2 Nov
FED Interest Rate decision 18.00 gmt

Thursday 3 Nov
BOE Interest Rate decision 12.00 gmt
BOE Governor, Mark Carney speaks 12.30 gmt

Friday 4 Nov
NFP release 12.30 gmt

Tuesday 8 Nov
US Presidential elections – 24 hours

Wednesday 9 Nov
RNZB Interest Rate decision 20.00 gmt

Tuesday 15 Nov
UK CPI (YoY) and Core CPI 09.30 gmt
US Retail Sales 13.30 gmt

Thursday 17 Nov
ECB Monetary Policy Meeting account 12.30 gmt

Wednesday 23 Nov
US Durable Goods Orders 13.30 gmt
FOMC minutes 18.00 gmt

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