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Euro Slides as Italy Rejects Constitutional Change The euro came under pressure in early Asian trading Monday as first exit polls and then results indicated a strong majority rejecting the proposed changes to the Italian constitution. The referendum was widely seen as a vote on the Italian government and Prime Minister Matteo Renzi quickly followed through on his promise by saying he would offer his resignation to the Italian president Sergio Mattarella. Early indications have the ‘No’ camp winning in the region of 60% of the vote. EUR/USD fell steadily rather than spectacularly in early Asian trading, having opened at 1.0670. It ground lower to touch 1.0508 as Renzi announced his resignation, but then bounced to 1.0550.
Liquidity Conditions “Here to Stay” – Survey A new survey of hedge funds finds that almost half of respondents believe that decreased market liquidity “is a secular shift that is here to stay”. The study was conducted by State Street in partnership with the Alternative Investment Management Association (AIMA). It finds that regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy, have constrained the ability of many banks to perform their traditional roles as market makers, which in turn has impacted broader market liquidity conditions.
US Elections: After the Panic “Following the US election, global markets have reacted in predictable panic. Equity markets [and] the dollar sold off and gold rallied,” notes Kerim Derhalli, CEO of invstr. Profit & Loss previously reported on the immediate aftermath of the surprise US election victory for Donald Trump, but the question facing markets now is: what next? “Key will be now whether or not Trump will prove to be a populist or a pragmatic president,” says Valentijn Nieuwenhuijzen, chief strategist and head of multi-asset at NN Investment Partners.
Dollar Lower as Trump Wins US Election In a result that was not seen by pollsters or markets, Donald Trump has, according to US networks, won the US presidential election. As results came in through the night and the swing to Trump became apparent, equity index futures were crushed, Japan’s Nikkei Index at one stage being 1000 points down, and the US dollar was hit hard as part of a “risk off” trade. USD/MXN, the bellwether pair for the election, dropped to 18.1650 in trading soon after polls closed as exit polls predicted a Clinton victory, however as Trump crept up in the polls the pair jumped higher, ultimately hitting a high 20.77 – a fall for the peso of 14.3%. The fall in the peso prompted Mexican authorities to call an emergency meeting to discuss their response to the financial fall out from the election.
Volumes High, Spreads Holding Up as US Election Uncertainty Grows Sources are reporting “very high” volumes in FX markets as uncertainty over the outcome of the US election increases. With some polls still open in the US the financial markets have swung 180 degrees from expectations of a Hilary Clinton victory towards “too close to call” and in some cases a Donald Trump win. The growing shock of the pollsters once again getting it wrong has seen USD/MXN – the benchmark for the election as far as FX markets are concerned, sky-rocketing almost 12% from 18.30 to 20.48. The impact has been felt elsewhere with USD/JPY dropping sharply from above 105.50 to 101.50 and EUR/USD rising from 1.10 to 1.1231.
Random FX Volatility Characterises Early Returns in US Election As polls in eastern states closed the FX market has seen some whippy price action, however according to dealers spreads remain reasonable. USD/MXN, widely seen as the bellwether of the election outcome, has whipped around, from 18.30 when polls closed it has hit a high of 18.44 and a low of 18.1650 and was, ironically, last trading at 18.30. “The market is keying on Florida,” an Asian-based trader tells Profit & Loss. “It looks tight but you can track the updates by the moves in USD/MXN.”
Mapping the Scenarios for Today’s Election Today marks the conclusion of an acrimonious US Presidential race, with two candidates promising very different approaches to handling the US economy. As a result, analysts have been furiously mapping out the potential impacts of either result. If Clinton wins: Analysts at ING predict that in the case of a Clinton win USD will retrace its pre-election losses and re-couple with Federal Reserve expectations. “Latest breakout of wage growth from post-crisis range means a Clinton win should see markets (fully) price in a Dec Fed rate hike,” they note.
UK Court Rules on Brexit, BoE Leaves Rates Unchanged Sterling jumped almost 100 pips today after the British High Court ruled that the UK parliament must vote on Brexit before it is formally triggered by Article 50. The government is expected to appeal the court’s decision, but in the meantime, sterling rose from 1.2335 at 10am UK time to peak at 1.2494 by 1:15pm, its strongest since the October 7 flash crash. The other big news in the UK today was that the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain Bank Rate at 0.25%.
US Elections: What Does the USD Data Suggest? TraderMade’s chief technical analyst, Steve Jarvis, has put out some interesting research looking at USD trading patterns around past presidential elections to see if there is any indication of what to expect in the upcoming one. Using a USD trade weighted index chart for his analysis rather than specific FX rates, Jarvis looked at how the USD moved during the two months leading up to the previous seven US presidential elections and the two months after. Going back to 1988, Jarvis highlights who was elected, their defeated opponent, and includes the percentage change for the USD index for the two months before and after the election, as well as the net change over the four-month period.
Saxo Braces for US Election Saxo Bank is increasing margin requirements on certain FX pairs, equity and fixed income products ahead of next month’s US election. Saxo says that it will implement margin changes on products expected to be affected by the outcome of the election such as some single equity, index and fixed income CFDs, and certain FX pairs. This includes taking most major FX pairs up to 2-3% with RUB and MXN going to 10% and 15%, respectively, while the minimum margin requirement on CFD indices will be 4% based on market volatility and liquidity leading up to and through the election.