Markets tracked their historical norm on election day, volatile reversals incoming?

We saw the usual risk-on bounce election day tends to bring. But if markets continue to track their historical averages, we’re in for some volatile reversals today.

It was the usual risk-on tone for markets as we headed into the close of election day. As noted in earlier articles, indices across Europe, Asia and the US tend to perform well alongside gold, oil and commodity FX AUD, NZD and CAD. And with the exception of the FTSE 100 and China A50, that is exactly what we saw.

Wall Street futures rose over 1% led by the Nasdaq 100, while the S&P 500 and Dow Jones enjoyed their best day in over six weeks.
AUD/USD closed above its 200-day MA amid its best day in five weeks, keeping my upside target of 0.6680 alive and well
The Aussie also rose 0.8% on the day, right in line with its election-day average performance of 0.81%
EUR/USD closed above 1.09 in line with my bullish bias, GBP/USD closed above 1.30
USD/CAD continued lower for a second day, posting its worst two days in six weeks

The table above shows how markets performed the three days either side of the US election over the past 10 years. And if markets continue to follow their historical averages around a US election, traders should be on guards for Tuesday’s moves to reverse and volatility peak today.

Implied volatility for forex pairs has certainly spiked, with the overnight IV implying moves in excess of 300% on most forex majors. In fact the 1-day IV has blown out to 652% of its 10-day average for USD/CAD. I suspect these extreme readings are mor to do with the rise of demand for hedging (and therefore higher cost) to hedge as opposed to moves being this excessive, but we can all agree that volatility is more likely to be higher than lower today.

AUD/USD technical analysis:

The Australian dollar formed a solid close on election day, right in line with its 0.8% average of the past 10 years. And if it is to track its historical average today, it could be in for a 1.75% high-to-low range and a lower close of 0.4%.

I’ll stick with my simple premise that Harris leading could be good for AUD/USD whereas a Trump lead could weigh on it. But also take note that volatile tends to remain elevated through to Thursday, and that could certainly be the case if things take a turn for the worse concerning dubious and early calls for victory, accusations of fake results and general social unrest. While this could make things volatile, it does not necessarily make for nice price action.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.