These are 4 charts that in my opinion define the election. Total re-run of Brexit fiasco.
Chart #1 – Mexican Peso crashes
The Mexican Peso crashed. Reason? Trump promised to build a wall between USA and Mexico and to send illegal immigrants (many Mexicans?) home. This is a whopping 14.5% move in less than a day so far.
We are seeing lots of whoppers like this. For instance, GBPJPY crashed 15% in 1 day following the ‘unexpected’ Brexit vote. I wrote this before and I want to point out again, moves like these are signs of instability when so many happen in such a short time. Recall also the recent GBP flash crash for unknown reasons so far.
All these are worrying signs of instability. Consider the damage caused 15 January last year by a flash crash of CHF pairs due to Swiss National Bank’s decision to de-peg the EURCHF. The crash caused several branded forex brokers to become insolvent. In addition consider these market shaking events:
1. March 15 2015 FOMC decision not to hike rates despite wide belief caused EURUSD to spike 400 plus pips in 3 hours.
2. August 11 2015 PBOC’s shock decision to devalue the Yuan caused USDCNH to spike 1600 pips in 5 hours.
3. Currencies, stock market flash crash with US stock indices limit down on ‘Black Monday’ 24 August 2015.
4. China stock market indices limit down on January 04 this year leading to worldwide contagion.
5. ‘Unexpected’ Brexit vote throws GBP into chaos, with GBPJPY down 15% in a day.
Chart #2 – Unexpected, complacent or pointed in the wrong direction?
I think that markets have totally misread social mood and therefore failed to price in political risks. Is it because markets have become complacent or is it because markets have become acustomed to reading pro-status quo reporting by MSM? (Clinton is positioned as candidate for status quo.) Here is an example of the media selling the good and overlooking the bad.
— Bloomberg Markets (@markets) November 9, 2016
Because of that complacency or misdirection, S&P500 and Nasdaq futures are now limit down.
Chart #3 – AUDJPY crashing together with Asian stock indices
AUDJPY is a good example of what appears to be strong can turn to shit in a hurry. AUDUSD is another good example. Because of policies like ZIRP, NIRP, global investors have been forced to jump through hoops to chase diminishing returns but at the first sign of trouble, old correlations/risk-off drivers emerge.
I have written about this here and here. In the case of AUDJPY, this pair has a strong correlation to Asian stock indices and at the first sign of correction, heads south very quickly. There are two drivers which I have written here.
AUDJPY used to be a very good indicator of ‘intermarket correlation’. It clearly tracked Asian stock market indices such as Hang Seng Index, Singapore Index Futures (SiMSCI) and MSCI Emerging Markets Index (EEM). The positive correlation could be due to 2 dynamics:
1. AUD tends to do well when Asian economies like China are doing well (think of Australian exports of iron ore, other commodities).
2. JPY tended to strengthen due to repatriation when its stock market i.e. Nikkei 225 is not doing well (which also tracks Asian indices).
Chart #4 – Gold rallies
I have insisted in many previous posts that XAUUSD is now in a bullish trend. See here, here. With Gold’s rally again today, it is important to look hard at it’s function – as a protection of wealth. I wonder if the Mexicans bought any gold.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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