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.

Dealers report spreads are wider but “reasonable” with
EUR/USD being quoted 1-1.5 pips wide and USD/JPY 2-3 pips wide. USD/MXN spreads
are said to be 300-400 pips, but, according to one Asia-based trader, “You can
get business done – liquidity is as good as could be expected.”

Volumes are also higher with one dealer telling Profit & Loss their firm is seeing
activity “more than three times usual at this time of day”. The dealer further
says the firm is “managing risk more actively”, adding this is as it was on the
night the UK voted on EU membership in June.

US TV networks are not expected to call the election in the next
hour as is often the case when west coast polls close with so many key states “too
close to call”, and as such dealers are bracing for more volatility.

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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