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

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.