A New President's Potential Impact on Oil Prices1. Introduction
The U.S. presidential election in 2024 is set to bring new leadership, with a new president guaranteed to take office. As history has shown, political transitions often have a profound effect on financial markets, and crude oil is no exception. Traders, investors and hedgers are now asking the critical question: how will WTI Crude Oil futures react to this change in leadership?
While there is much speculation about how a Democrat versus a Republican might shape oil policy, data-driven insights provide a more concrete outlook. Using a machine learning model based on key U.S. economic indicators, we’ve identified potential movements in crude oil prices, spanning short, medium, and long-term timeframes.
2. Key Machine Learning Predictions for Crude Oil Prices
Short-Term (1 Week to 1 Month):
Based on the machine learning model, the immediate market reaction within the first week following the election is expected to be minimal, with predicted price changes below 2% for both a Republican and Democratic win. The one-month outlook also suggests additional opportunity.
Medium-Term (1 Quarter to 1 Year):
The model shows a significant divergence in crude oil prices over the medium term, with a potential sharp upward movement one year after the election. Regardless of which party claims the presidency, WTI crude oil prices could potentially rise by over 40%. This is in line with historical trends where significant price shifts occurred one year post-election, driven by economic recovery, fiscal policies, and broader market sentiment.
Long-Term (4 Years):
Over the course of the full four-year presidential term, the model predicts more moderate growth, averaging around 15%. The data suggests that, while short-term market movements may seem reactive, the long-term outlook is more balanced and less influenced by the winning party. Instead, economic conditions, such as interest rates and industrial activity, will have a more sustained impact on crude oil prices.
3. Feature Importance: The Drivers Behind Crude Oil Price Movements
The machine learning model's analysis highlights that crude oil price movements, especially one year after the election, are primarily driven by economic indicators, rather than the political party in power. Below are the top features influencing crude oil prices:
Top Economic Indicators Influencing Crude Oil:
Fed Funds Rate: The most significant driver of crude oil prices, as interest rate policies affect everything from borrowing costs to overall economic growth. Changes in the Fed Funds Rate can signal shifts in economic activity that directly impact oil demand apart from the US Dollar itself.
Labor Force Participation Rate: A critical indicator of economic health, a higher participation rate suggests a stronger labor market, which supports increased industrial activity and energy consumption, including crude oil.
Producer Price Index (PPI): The PPI reflects inflation at the producer level, impacting the cost of goods and services, including oil-related industries.
Consumer Sentiment Index: A measure of the general public's outlook on the economy, which indirectly influences energy demand as consumer confidence affects spending patterns.
Unit Labor Costs: An increase in labor costs can signal inflationary pressures, which could lead to changes in oil prices as businesses pass on higher costs to consumers.
This study exclusively uses U.S. economic data, excluding oil-related fundamentals such as OPEC+ supply and demand information, in order to focus on the election’s direct impact through domestic economic channels.
Minimal Influence of Political Party on Price Movements:
Interestingly, the machine learning model suggests that the political party of the newly elected president has a relatively low impact on crude oil prices. The performance of WTI crude oil appears to be more closely tied to macroeconomic factors, such as employment data and inflation, than the specific party in power.
These findings emphasize the importance of focusing on economic fundamentals when analyzing crude oil price movements for longer term exposures, rather than solely relying on political outcomes.
4. Historical Analysis of Crude Oil Price Reactions to U.S. Elections
Looking back over the last two decades, the performance of crude oil post-election has varied, depending on global conditions and the economic policies of the newly elected president.
Notable Historical Movements:
George W. Bush (Republican): In his 2000 election, crude oil dropped nearly 50% within a year, reflecting the broader economic fallout from the bursting of the dot-com bubble and the events of 9/11. In contrast, his 2004 re-election saw oil prices climb 21.5% within a year, driven by the Iraq War and increasing global demand for energy.
Barack Obama (Democratic): After his 2008 election, crude oil prices surged by 33.8% within one year, partly due to economic recovery efforts following the global financial crisis. His 2012 re-election saw more modest growth, with an 8.3% rise over the same period.
Donald Trump (Republican): His election in 2016 coincided with a moderate 23.8% increase in crude oil prices over one year, as the U.S. ramped up energy production through fracking, contributing to global supply increases.
Joe Biden (Democratic): Most recently, crude oil prices skyrocketed by over 100% in the year following Biden’s 2020 victory, driven by post-pandemic economic recovery and supply chain disruptions that affected global energy markets.
5. WTI Crude Oil Contracts: CL and MCL Explained
When trading crude oil futures, the two most popular contracts offered by the CME Group are WTI Crude Oil Futures (CL) and Micro WTI Crude Oil Futures (MCL). Both contracts offer traders a way to speculate or hedge on the price movements of crude oil, but they differ in size, margin requirements, and ideal use cases.
WTI Crude Oil Futures (CL):
Price Fluctuations: The contract moves in increments of $0.01 per barrel, meaning a $10 change for one contract.
Margin Requirements: As of recent estimates, the margin requirement for trading a CL contract is around $6,000, though this can fluctuate depending on market volatility.
Micro WTI Crude Oil Futures (MCL):
Price Fluctuations: 10 times less. The contract moves in increments of $0.01 per barrel, meaning a $1 change for one contract.
Margin Requirements: 10 times less, around $600 per contract.
Practical Application:
During periods of heightened market volatility—such as the lead-up to and aftermath of a U.S. presidential election—traders can use both CL and MCL contracts to navigate expected price fluctuations. Larger traders might use CL to hedge against or capitalize on significant price movements, while retail traders may prefer MCL for smaller, controlled exposure.
6. Conclusion
As the 2024 U.S. presidential election approaches, crude oil traders are watching closely for market signals. While political outcomes can cause short-term volatility, the machine learning model’s predictions emphasize that broader economic factors will drive crude oil prices more significantly over the medium and long term.
Whether a Democrat or Republican wins, crude oil prices are expected to see a potential increase, particularly one year after the election. This surge, driven by factors such as interest rates, labor market health, and inflation, suggests that traders should focus on these economic indicators rather than placing too much weight on which party claims the presidency.
7. Risk Management Reminder
Navigating market volatility, especially during a presidential election period, requires careful risk management. Crude oil traders, whether trading standard WTI Crude Oil futures (CL) or Micro WTI Crude Oil futures (MCL), should be mindful of the following strategies to mitigate potential risks:
Use of Stop-Loss Orders:
Setting predefined exit points, traders can avoid significant drawdowns if the market moves against their position.
Leverage and Margin Control:
Overexposure can lead to margin calls and forced liquidation of positions in volatile markets.
Position Sizing:
Adjusting position sizes according to risk tolerance is vital especially during uncertain periods like elections.
Hedging Strategies:
Traders might consider hedging their crude oil positions with other instruments, such as options or spreads, to protect against unexpected market moves.
Monitoring Economic Indicators:
Keeping a close watch on key U.S. economic data can provide valuable clues to future crude oil futures price movements.
By using these risk management tools effectively, traders can better navigate the expected volatility surrounding the 2024 U.S. election and protect themselves from significant market swings.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Uspresidentialelection
US Presidential Election EUR/USD AnalisysThis is a significant event that could determine the appropriate stance of monetary policy and assess the risks to its long-run goals of price stability and sustainable economic growth.
We don't expect a break of actual support and resistance levels until the end of the votes counting. On Tuesday, as one of the candidates gains advantage we might start seeing a breakout of actual range. A win for Trump would represent a strengthening of the USD while a win for Biden would represent a Dollar weakening.
BTCUSD Not ready for Breakout!! Short $14,000usdBITFINEX:BTCUSD
Is bitcoin forking from reality? Or is it a really good time to sell?
"Who’s nervous about the outcome of the US presidential election? Not the markets. Bitcoin is up above $14,000 and stocks are soaring."- Decrypt, Nov 4, 2020.
I wont provide a very long explanation to why I'm short as I believe the chart speaks for itself.
Bitcoin is playing in a dangerous resistance zone, as we see that $ 13,800 marks the highest point in the markets for 2019. Additionally, this coin has proven to be one of the most cyclical coins out there, which supports the fact that what happened a couple months ago on Sept 6th is likely to repeat again, as we may see a retracement back to $12,000 before new highs.
Again I'm not financial advice, but setting a stop loss above $14,000 and a target at $12,000 seems pretty reasonable for me in the execution of this short.
Note that we are in one of the strongest bull markets that we've seen in recent years, so any continuation signal without a pullback, should be considered as an exit signal.
Trade at your own risk.
US Presidential election US30 / DJI trading ideaCurrently, my sentiment is Bullish because of the price action. But, if Joe Biden wins the elections, most likely I will short-selling the breakout.
Catalyst:
- US Presidential Election
USDJPY - Before US presidential election - Technical Analysis
The US presidential election will effect the market in a few hours. But before that happens, I'd like to see how Support and Resistance lines that i detected react to it.
So here are the support levels;
Support level @ 104.10
Support level @ 101.18
Support level @ 98.98
And Resistance levels are;
Resistance level @106.10
Resistance level @107
Resistance level @108.15
Resistance level @109.85
Resistance level @111.70
Resistance level @112.22
I will update USDJPY in the next week. So please don't forget to follow my here.
Thanks
Kamran
US Presidential Elections and Investment Strategies ExplainedDisclaimer: this is a completely APOLITICAL analysis based solely on facts and my personal insight.
This is not financial advice. This is for educational purposes only.
In this analysis, I’ll be discussing my own thoughts on the elections, the effect on the stock market, and what we can do as investors.
To begin with, my guess is that Trump’s chances of getting re-elected is higher due to a few reasons:
- Shy Trumpers: We have seen Clinton dominate the polls for the previous election, underestimating the number of conservatives who weren’t open about their political views
- The Democratic Criteria: Traditionally, democratic candidates who won the elections qualified for either one of these:
1) Someone who had the presidential aura and vibe to begin with, absolutely dominating the campaign over his republican counterpart
Ex) Franklin D. Roosevelt, JFK
2) Someone people never even imagined would be president
Ex) Barack Obama
Biden is a political veteran, and someone who isn’t unexpected, as he’s the former vice president. Therefore, he doesn’t fit the conventional model of democratic candidates who have won the presidential elections.
However , there are always elements of surprise, and no one can really accurately predict the results.
The real surprise is that the result of the election does not have a direct impact on the stock market .
Generally, investors tend to be more conservative than liberal. This is due to the fact that republicans are generally more:
- Business friendly
- Pro Free Market
- Less prone to regulations
- In support of the wealthy class
The psychological aspect of these traders is also reflected in the market.
However, data suggests otherwise:
Above in the chart, we can see the profitability comparisons of a case when a democrat is newly elected, in contrast to a case when a republican is re-elected. This is data from the S&P500 from 1924 to 2017.
Market participants believed that the economy and the stock market would underperform with a democrat as president, because liberals tend to focus on distribution of wealth more so than the accumulation of it.
However, in the inaugural year, the stock market demonstrates huge growth under the democrat president. This is because they start to realize that the distribution of wealth isn’t done as well as the president said it would be. In other words, people notice that having a democrat president isn’t necessarily bad for the economy.
In the same context, people have high hopes for a republican president to lead the economy upwards, but the republican president won’t do anything extraordinary compared to the democrat president. As such, the inaugural year returns are much lower.
Thus, considering everything, there isn’t much of a difference in the overall returns of a stock market under either a republic or democrat president. What matters more than the president’s political stance is market timing.
So what should we do as investors?
Based on the data of the stock market, and the psychological insight we can get from how investors react, our plan as investors can be organized as follows:
1. If Trump Gets Re-elected
The highest probable case for the stock market is that we see the market continue its uptrend for the short term. As I have previously mentioned in my other analysis, the current market is driven heavily by momentum, and Trump’s re-election will be identified as bullish news by investors.
(Above is the analysis on the current Nasdaq’s uptrend)
As such, in case Trump gets re-elected, it would be best to wait to see the market reach overbought territories for the short term, in order to cash out and wait for the next dip to buy in.
2. If Biden Gets Elected
The highest probable case for the stock market when Biden gets elected, is to see a temporary dip in the market. As the market is driven by momentum, investors’ fear, doubt, and uncertainty will be reflected in the market, leading to a short term correction.
However, as mentioned in my other analysis (chart above), the fundamentals of the companies sustaining indices such as the S&P500 or the Nasdaq index are solid. As such, over the long run, the news of Biden getting elected itself will not have any negative impacts on the stock market, and the correction will be a ‘buy the dip’ opportunity for the long term.
Conclusion
In summary, no one can accurately predict future events, or the market’s price action or reaction to such events. What we can, and need to do, is be prepared for all probable cases of outcomes. Above, I have provided my own take on the current situation, and how I plan on preparing for the volatility to come. These are the steps you need to follow to do your own research and analysis:
1. Establish a hypothesis, and conduct research and look for data to back it up
2. Think of all probable cases
3. Weigh in probabilities to all those cases
4. Think of an investment plan to prepare for all probable cases
5. Test your hypothesis
6. Revise your decision and thought process, and analyze why you were (in)correct.
If you like this analysis, please make sure to like the post, and follow for more quality content!
I would also appreciate it if you could leave a comment below with some original insight.
GOLD NEW ATH OR BACK TO TREND?Gold having recently fallen 11% from its all time high (US$2075) back in August is interesting.
Usually used as a Hedge during times of high volatility in the markets, gold is taking what looks to be a serious retrace after 2 years of mostly uninterrupted growth.
What's interesting is that the markets across the world have become inherently more unstable due to local government restrictions and the economic fallout of Covid19.
The real unknown is where to from now.
The US will hit approx $3.3 trillion annual debt deficit ending September 2020 which is the largest ever recorded, and spending has no end in site. Will the US continue to dig themselves into a hole and what will this mean for the price of gold?
Above are some bar patterns taken from 2010-2015.
Scenario A (ORANGE): Shows increasing growth after a mild retrace after 700 days as depicted between OCT 2008- NOV 2010. Again retesting US$2075 & consolidating against Uptrend Channel Resistance, before breaking through to reach new ATHs
Considering we have only seen an 81.6% rise in price over the last 2 years compared to the run of 2008-2011 (180%), it is fair to say we still have more left in the tank to test ATH territory? Especially with the 2020 US Presidential Election looming.
Scenario B (BLUE): Shows support being found around a potential Equilibrium at US$1770, which also happens to be a key Fib Retracement level 0.5 (Extension form 16/03/2020 to ATH) and bouncing. Followed by a drop after the Presidential Election Results causing a range to be form between $1700-1900.
Eventually breaking resistance and the Ichimoku Cloud to fall back to previous support & the long term uptrend trendline.
All Hypothetical & Spec but interested to see everyones long term targets and explanations.
These Ideas are NOT 'Financial Advice'!. Scenarios are based off a mixture of TA and Fundamentals current at the time. All IMO GLTA. Happy Hunting!!! *Prices will differ depending on charts used
EUR/USD: weekly (T)Hi Guys,
please find above an update of the following idea posted a year ago on March 9, 2019
Medium-Term narrative: since Trump has been elected US President at the end of 2016 the dollar weakened a lot at the beginning of his term to regain strenght before 2020 US Presidential Elections.
Long-Term narrative: I have some ideas but I need to outline them on another chart otherwise it may become too messy. But I think this is enough in view of fortcoming US Presidential Elections at the end of 2020.
Please share your views or comment and if you have any questions please do not hesitate to ask.
Thank you for your support and for sharing your ideas.
Disclaimer:
Please note that I am not a professional trader and these are my personal ideas only. The information contained in this presentation is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. Cozzamara is not responsible for any liabilities arising from the result of your market involvement or individual trade activities.
GOLD LONGXAUUSD LONG:
- Support line tested again
- Fib + Previous Structure
- All previous shocks unable to beat support (month, two)
RISKY, Hillary win could result in a heavy bearish trend!
PRESIDENTIAL ELECTION - TRUMP TO WIN - SHORT SPX & LONG VIXPreparing for a Trump win
Following Friday and the FBIs decision to re-open the case on Hilary I have decided I am going to assume A Trump win, this is for several reasons:
FBI
pbs.twimg.com
1) After reading into it, the reopening of the FBI case implies one of three things imo - 1. They have found new significant information that can or will see Hilary odds come under-pressure if not ruled out entirely. 2. A third party (wiki leaks or Russia etc) has obtained information regarding that matter that will be used against Hilary. 3. The FBI Chief fancies his 2 minutes of fame.
- In terms of likelihoods, 1 is perhaps the most likely - I find the timing of the reopening the most damning argument for there being some real anti-hilary firepower, given it is within the FBIs discretion to reopen the case now, surely if it wasnt that important they could wait until after? Of course this may be questionable integrity but equally some may argue they should have done so to stay neutral. However, perhaps most interestingly, the timing AND the fact the FBI have been pro Hilary in the past also gives weight to number 2 - where the FBI have had their hnd forced e.g. if a 3rd party does indeed have some relevant information the FBI perhaps dont want to be seen as incompetent and thus want to get infront of the news. The timing also supports argument 2 since it is a bit of a shock announcement and thus it could be a 3rd party forcing their hand. On the other hand some may question why a 3rd party would notify the FBI and not just release it. Finally, 3 as is the case in most public situations, it is possible and it is the US after all. however, an argument against this is the fact the FBI have been pro Hilary so its unlikely this would only happen for fame.
- If it is any of the 2 above and information that could write Hilary off as a candidate, of course positioning for Trump make sense. especially when the market is very very short trump here. Since Friday Trump has lost half of his gains to trade currently at 23% up from 18% but down from 27%, these are odds i like to start adding some length for trump.
POLL
voteforthepresidentonline.com
1) Recent official polls of 1000-2000 are a lot tighter than i expected and are certainly imply much longer odds for Trump. However the main decider for this variable is that an unofficial online poll of 1,000,000 shows trump trading at 526652 with Hilary lagging down at 253024, putting trump up at 60% and Hilary down at 30%. I saw an unofficial poll for brexit which had 700,000 respondents with 70% for leave and 30% remain and we know what happened there. IMO data rules, 1000 isnt enough to be representable there is too much sampling error. In conjucntion with this I feel there will be alot of closet trump voters.
PRESIDENTIAL ELECTION - TRUMP TO WIN - SHORT SPX & LONG VIXPreparing for a Trump win
Following Friday and the FBIs decision to re-open the case on Hilary I have decided I am going to assume A Trump win, this is for several reasons:
FBI
pbs.twimg.com
1) After reading into it, the reopening of the FBI case implies one of three things imo - 1. They have found new significant information that can or will see Hilary odds come under-pressure if not ruled out entirely. 2. A third party (wiki leaks or Russia etc) has obtained information regarding that matter that will be used against Hilary. 3. The FBI Chief fancies his 2 minutes of fame.
- In terms of likelihoods, 1 is perhaps the most likely - I find the timing of the reopening the most damning argument for there being some real anti-hilary firepower, given it is within the FBIs discretion to reopen the case now, surely if it wasnt that important they could wait until after? Of course this may be questionable integrity but equally some may argue they should have done so to stay neutral. However, perhaps most interestingly, the timing AND the fact the FBI have been pro Hilary in the past also gives weight to number 2 - where the FBI have had their hnd forced e.g. if a 3rd party does indeed have some relevant information the FBI perhaps dont want to be seen as incompetent and thus want to get infront of the news. The timing also supports argument 2 since it is a bit of a shock announcement and thus it could be a 3rd party forcing their hand. On the other hand some may question why a 3rd party would notify the FBI and not just release it. Finally, 3 as is the case in most public situations, it is possible and it is the US after all. however, an argument against this is the fact the FBI have been pro Hilary so its unlikely this would only happen for fame.
- If it is any of the 2 above and information that could write Hilary off as a candidate, of course positioning for Trump make sense. especially when the market is very very short trump here. Since Friday Trump has lost half of his gains to trade currently at 23% up from 18% but down from 27%, these are odds i like to start adding some length for trump.
POLL
voteforthepresidentonline.com
1) Recent official polls of 1000-2000 are a lot tighter than i expected and are certainly imply much longer odds for Trump. However the main decider for this variable is that an unofficial online poll of 1,000,000 shows trump trading at 526652 with Hilary lagging down at 253024, putting trump up at 60% and Hilary down at 30%. I saw an unofficial poll for brexit which had 700,000 respondents with 70% for leave and 30% remain and we know what happened there. IMO data rules, 1000 isnt enough to be representable there is too much sampling error. In conjucntion with this I feel there will be alot of closet trump voters.
USD PRESIDENTIAL ELECTION - SELL MXNJPY - RISK & SENSITIVITYPresidential Election - Trump wins - MXN more sensitive than USD, Yen to pick up the risk-off shift:
1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity).
- Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility.
- Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017.
Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense:
1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out.
Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY:
1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks.
2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
USD PRESIDENTIAL ELECTION - SELL MXNJPY - RISK & SENSITIVITYPresidential Election - Trump wins - MXN more sensitive than USD, Yen to pick up the risk-off shift:
1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity).
- Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility.
- Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017.
Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense:
1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out.
Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY:
1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks.
2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
RISK-OFF YEAR: BREXIT & US PRESIDENTIAL ELECTION: BUY GOLD @12592016, the year of the Risk-Off Asset
Historically Gold has performed +10-20% in the 6 months into US Presidential Election years AND also by longing Gold on this pull-back it opens up the opportunity to benefit from the potential tail risk that the UK votes to "Brexit" in which Gold will likely trade through $1400.
Gold is one of my favourite plays for 2016 for these reasons so I suggest a strategy of:
Buy GOLD - 1@1259 2@1237 3@1210
Long term TP $1395 SL $1195
Short term TP $1310 SL $1195
- Near-term on a UK Vote to stay we will likely see Gold risk-on sell off towards the $1200 handle - this is a great opp to get a good average price by buying Gold on its way down as I expect Gold to trade close to $1400 by years end and into the Election.
- A UK Vote Leave will put Gold close to the $1400 level within a week.
- The time-risk are asymmetrically skewed to the upside for Gold IMO as 1) in the near term, Brexit and Global economic unbalance uncertainty buoys the precious metal; Further, the recent failure of risk markets (SP/DJ) to set new highs despite posting recovery, likely signifies the end of the equity bull run, and thus the start of the Gold bull Run.
- and 2) The US FOMC Rate Hike Cycle, US Presidential election and wider Global Economic concerns of Deflation and low-growth which is a systemic issue and is also likely to be the case for the foreseeable future (with the 2nd and 3rd largest Central Banks - ECB and BOJ under pressure - among much of the developed world) all contribute to drive the increase in risk-off/ safe haven demand for Gold over the Long-Medium term.
- Gold is selling-off due to the increased risk appetite in the market currently as the near-term Brexit risk is soothed by "Stay" biased polls - HOWEVER, with Gold Volatility trading 50% lower than it was a week ago (reflecting the settled risk this week) with current ATM at 15%, and with 1M Risk-Reversals trading with a positive call skew of 3% we can expect an upward bias over the coming weeks/ months.
- As lower Implied Vols are projected across the 12m options curve and the 12m Futures curve is also trading contango which both imply the Gold market sentiment is for the price to rise.
- Finally, as the FOMC Rate hike cycle intensifies over the medium-term, bond prices will come under pressure, thus driving further demand for Gold as the higher quality and higher return asset is sought.
