Donald and Hillary put markets on ice 4Nov16


Donald and Hillary put markets on ice

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

·

· Weak Canadian data skewer loonie

· US NFP mildly positive on hourly earnings bump

· US election concerns to dampen trading enthusiasm

The relationship here is closer than many like to think. Photo: iStock

By Michael O’Neill

The US election is only four days away. Fortunately, two of those days are the weekend. That means, for 48 hours beginning on Monday, FX traders will be doing everything but trading.

And, why should they? Economic data releases, even top-tier ones, are meaningless due to the uncertainty of the outcome. Sure, a lot of polls say Hillary will win. The New York Times says Hillary has an 84% chance of becoming President! But FX markets are not convinced.

Brexit wasn’t going to happen, either… and then it did.

Source: New York Times

Election nerves derail USDX rally

The US dollar index has been grinding higher, albeit raggedly, the closer it gets to the December Federal Open Market Committee meeting. USDX has been in a steady uptrend since the beginning of May and that uptrend remains intact while prices are above 95.50.

The rally picked up steam in October and it had a test of 100.60 in its sights, but that move was derailed by last weekend’s news that the FBI was reopening the Clinton email investigation.

The break of 98.54 snapped the intraday uptrend and a further drop below 96.80 would lead to a test of the May uptrend.

USDX (daily):

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Source: Saxo Bank

The week ahead

FX markets will get off to a slow start. The first two days will likely be very quiet due to the US election. Wednesday will start with Donald Trump proclaiming one of the following: “the election was rigged” or “isn’t democracy wonderful”.

Election fallout will dominate trading for the balance of the week…

Elsewhere, China releases key data (trade) on Monday and PPI and CPI prints on Wednesday.

The Reserve Bank of New Zealand Monetary Policy meeting is on Thursday where a 0.25% rate cut is expected.

The week that was

This was a rare week. The FOMC policy statement was upstaged as the Donald-and-Hillary show hogged the spotlight which led to a noticeable increase in safe-haven flows.

USDCHF dropped from 0.9905 to 0.9690 and USDJPY declined from 105.22 to 102.53 during the week.

The US dollar finished the week on a losing note against all the G7 currencies except for the Canadian dollar… and WTI oil prices

Currency gains/losses versus USD from Monday NY open to 1500 GMT Friday:

Source: IFXA/SaxoBank

Monday started with Donald Trump’s reportedly fading presidential campaign reinvigorated by a renewed FBI investigation into rival Clinton’s emails. The US dollar edged higher versus EUR, GBP, and JPY due to the looming FOMC meeting on Wednesday while ignoring Eurozone PMI reports.

AUDUSD climbed, supported by higher than expected inflation data. Month-end portfolio rebalancing flows only had a minor impact. News that Bank of England governor Mark Carney agreed to extend his term lifted GBPUSD. Oil price sentiment was negative and WTI declined steadily

Tuesday, The Reserve Bank of Australia left rates unchanged and omitted an easing bias. AUDUSD rallied and then got an added boost from strong China PMI data. Those gains were erased in New York.

USDJPY rose ahead of the Bank of Japan policy announcement. That proved to be a mistake. The BoJ left rates and policy unchanged and the gains quickly disappeared. The European data calendar was light and several centres were closed for a holiday.

EURUSD managed to rally with traders focused on the USD election outcome and not the FOMC meeting. A strong ISM PMI report was ignored. Oil prices dropped following a huge rise in inventories as reported by the American Petroleum Institute.

Wednesday, kiwi got off to a great start. NZDUSD extended gains made in New York following a robust GlobalDairyTrade auction and a strong domestic employment report.

The US dollar was on the defensive but managed to rally after the FOMC statement was released. The Fed left the door wide open to a December rate hike. Oil prices tanked again when the Energy Information Administration reported a 14.42- million-barrel increase in weekly crude stocks.

Thursday, the proximity of the US election encouraged traders to stay on the sidelines. AUDUSD gained in Asia on improved trade data but the move was short lived. USDJPY was soft on safe-haven demand.

In Europe, sterling was the star of the show. A UK court ruled that the Conservative government required parliamentary approval to trigger Article 50. Then, the Bank of England delivered a less doveish than expected interest rate policy statement, essentially removing the easing bias. GBPUSD soared to 1.2492 from 1.2325.

The US delivered a mixed bag of data including a weak ISM Services PMI. The US dollar and US equities closed in the red for the day.

Friday, FX traders marked time awaiting the US employment report. The headline number was a tad short of expectations but the 0.2% jump in average hourly earnings was adequate compensation, leaving the December rate hike odds unchanged at 71.5%.

Nothing, however, is certain until Americans decide on the Donald. Photo: iStock

— Edited by Michael McKenna

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Author: Loonieviews

In the past 30+ years, I have been an FX interbank market making trader, a high performing FX and Derivatives Sales person, creator of simple and complex risk mitigation strategies and a manager of high performance FX teams. The Trade of the Day is a culmination of that experience. Retail FX traders have access to a well-crafted and carefully researched FX trade strategy designed to generate FX profits while mitigating losses.

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