As the US goes to the polls markets are consolidating. However this will certainly be the calm before the storm and overnight tonight we could get some significant swings with big volatility across forex and commodities. As the swing states are revealed early on Wednesday morning (UK time) we should get an indication of the victor. However that means volatility is likely to be significant early on, especially if Trump has a few strong early results. Ultimately with Hillary Clinton around 4% ahead in the polls and likely to win, a Clinton victory would be the least volatile outcome for markets. What are the key levels to watch for a Clinton or a Trump victory in today’s Presidential election?
What time could we know tomorrow morning?
- Trump will probably need to take the key swing states of Florida, Ohio and North Carolina to defeat Clinton which means that it could be as early as 0100GMT that an indication of the winner will be seen.
- If it is going to happen, a Trump victory could be becoming clear around 0300GMT.
- A Clinton victory may need to wait for confirmation of California around 0400GMT.
According to 538.com the swing states and projected outcomes are below.
Michigan, Pennsylvania & Wisconsin by 9pm ET (0200GMT) with a final outcome around 11pm EST (0400GMT). In 2012, major networks called the election by around 11:15pm ET
So, if we take Brexit as a crude benchmark of volatility in price swings, there could easily be some significant moves, especially if Trump performs well in the early announcements. The high/low ranges and the price swing on the day for key markets on Brexit:
- EUR/USD 4.8%
- GBP/USD 13.55%
- USD/JPY 7.8%
- AUD/USD 4.7%
- USD/MXN 7.7%
- Gold 8.6%
It is fair to say that a Clinton victory would be fairly priced in by the market but there is still likely to be some dollar strength, but also risk positive moves. In the event of Clinton winning there will still be a reaction as the uncertainty is removed. I think that a 2% gain for the dollar against these pairs could easily be seen. I would expect the yen to be a strong volatility play, whilst I think that sterling could be more on the steady end of the spectrum.
A 2% dollar strengthening on a Clinton win would mean:
- EUR/USD sliding to $1.0820 – there is strong support between $1.0850/$1.0900.
- GBP/USD down to $1.2150 – there is strong near term support starting at $1.2330 and down to $1.2250.
- USD/JPY up to 106.90 – the key resistance to overcome is around 105.50
- AUD/USD around $0.7540 with strong support in the $0.7500/$0.7550 band.
- Gold back to around $1255 – with a strong band of support between $1260/$1265.
A Trump victory would be far more of a surprise/shock to the markets. It would create a much bigger reaction tomorrow and also ongoing too. I think that around 5% move against the dollar towards safe havens could be seen, although I believe that the volatility would be slightly reduced on the euro.
- EUR/USD jumping test $1.14/$1.15 should not be ruled out – there is strong resistance initially $1.1300/$1.1350.
- GBP/USD back higher towards $1.2800 – this was the old key floor during the summer post Brexit.
- USD/JPY dropping back towards the crucial 100 level again – however, what would the response of the Bank of Japan be?
- AUD/USD towards $0.8100 – through to 18 month highs.
- Gold back higher towards $1350 which was the September resistance area.
The one exception would be Dollar/Mexican Peso which would find the Peso (or the Trump trade) benefitting strongly from a Clinton victory, but would likely be absolutely smashed on a Trump victory. For USD/MXN it could unwind towards 18.00/18.25 on a Clinton win (2% to 3%) although the move would possibly not be instantaneous. However a Trump victory would see the pair jump through last week’s high at 19.55 and through the September high of 19.92.
From current levels around 18.60, a 5% move would be c. 19.50. However, as shown earlier on Brexit day there was a daily swing of over 7%, so that should not be ruled out either. Looking at 7% upside in the event of a Trump victory would be 19.90 so this is well within the realms of possibility.