November calendar is full of opportunity as election looms
The currency markets should see a high degree of volatility in November 2016, particularly USD/MXN, EUR/USD, GBP/USD and JPY/USD. Two major events will occur in the beginning of November, one political and the other economic.
On November 1-2, 2016, the Federal Open Market Committee (FOMC) will decide on whether it will raise the Fed Funds target rate range or keep it unchanged at 0.25%-0.50%. The market is already pricing in a nonevent and assuming that the FOMC won't raise rates in November.
On November 8, 2016, the new President of the U.S. will be elected. No matter who is elected, you'll most likely see heightened volatility across multiple markets because some key regulations can change.
That being said, if you're in any FX currency trades or invested in the U.S. stock market, you'll want to keep an eye out on what the FOMC decides and who is elected as the U.S. President.
Volatility in the Currency Market
We've already saw an increased volatility in the U.S. dollar and Mexican peso currency pair on October 28th, 2016, but look out for the volatility to continue as more news. USD/MXN spiked from a low of 18.69 to a high of 19.10 on October 28th, 2016, after the Federal Bureau of Investigation stated that it is looking into newly uncovered emails from Hillary Clinton.
According to an analyst at Stern Options, "The market is focused on the FOMC's decision on November 1-2, 2016 and the U.S. Presidential election on November 8, 2016. With new news regarding an FBI investigation into Hillary Clinton's mail certainly adds a new degree of volatility into the markets."
Markets and polls are indicating that Hillary Clinton will be the U.S. President-elect, but this probe could hurt Clinton's reputation. Now, there is a higher probability that Clinton could lose the election, which could cause the USD/MXN to experience more volatility and spike higher. However, if Hillary Clinton wins and is still being investigated by the FBI, the markets will not take lightly. Investors may be looking for safe havens to place their money if this occurs.
Some other currency pairs that you might want to focus on are any major global currencies and the U.S. dollar. For example, after the news release of the FBI probing Clinton's emails, the U.S. dollar fell 0.70% against the Japanese yen. We also saw the EUR/USD spike to a high of 1.0990, or a 0.82% from its open on October 28th, 2016.
Some ETFs to Keep Under the Radar
There's a possibility that Donald Trump could win the U.S. Presidential election, but this is bad news for Mexico and its currency. If you've been following the U.S. Presidential election debates, you've probably heard that Trump wants to build a wall on the U.S.-Mexico border. Moreover, Trump promises to clamp down on illegal immigration and wants to renegotiate trade relations with Mexico. So, market participants are following and trading anything related to the U.S. dollar or Mexico.
The FOMC should cause increased volatility in the U.S. dollar its monetary policy meeting. If you're bullish on the U.S. dollar, you might want to consider an investment in the PowerShares DB U.S. Dollar Index Bullish Fund. However, if you're bearish on the U.S. dollar and believe it will fall in the short term because of the possibility that Trump could become president, you might want to consider the PowerShares DB U.S. Dollar Index Bearish Fund.
You should also watch investments that are tied to yields in November, such as ETFs tracking the U.S. Treasury markets. The outcome of the Presidential election should cause U.S. yields to fall, if Clinton loses. Now, we've already saw U.S. Treasury yields fall after the FBI indicated it would investigate Clinton.