2nd November USD/MXN: Nature Abhors A Vacuum

November 2, 2016

FXTrader Paul, Trading Set-ups

20161102-usdmxndaily-gap-filling

Hello traders,

Well this US election is starting to get a bit tasty isn’t it? Up until a week ago it looked like a complete white-wash (I use that word lightly) for the Clinton Campaign.

However after last Fridays revelation that the FBI were re-opening their investigation into her improper use of a personal email server it seems to have taken the wind right our of her sails. (And if you don’t really understand why it’s so important then let this ex-CIA officer explain why in this zerohedge article.)

In the military air-warfare business they normally talk about “he who holds the initiative usually wins the fight….” at the moment I’d say Clinton has lost the initiative – that’s not to say she couldn’t get it back in time, but it’s a setback. Has she just had her Neil Kinnock stumble on the beach moment?

My view is that if she won by a landslide then that was a vote by the American people for more of the same. If she lost then that was a vote by the American people for a change (somewhat like the Brexit vote).  The question is: do the American people want more of the same?

Even if she wins – I’m not convinced that it will be by a great majority. Think about that for a moment. She’d have struggled to beat Donald Trump (you can probably tell I am no real fan of either of them) – she’d be the second most negatively polled delegate (after DT) and the most unpopular person to enter office as president. That’s hardly a great start is it?

Personally I think that whoever wins that they’ll be inheriting a poisoned chalice – I believe markets are on a knife-edge. They could explode north…..or collapse. The older I become the more of a bear I become…so I have to constantly fight that bias and be prepared to just trade what I see. (But yeah, I have this nasty feeling of it all going ‘Pete Tong’!)

Which leads us onto the charts and the markets.  I have posted regularly about using the USDMXN rate as a proxy for the swings in the election. I mentioned in my last post a few areas of concern.

One area I mentioned was the weekend of the 7th October were price gapped down from the Friday close to the Sunday open. This was because that Friday we had the release of the Trump tapes and then we ran into the second debate. Remember price going down is an indication of a likely Clinton win – price reversing is more likely to show a Trump win.

The one thing I mentioned (and many times before) is that ‘Nature Abhors A Vacuum’ and markets are exactly the same. When there is a gap in the market it will always eventually fill it. It may take, hours, days, weeks, months or years….but it will fill it.

I have drawn a blue box on the chart above to show that gap and how over the last two days we’ve moved to fill that gap. Price is now trading about 19.40.  I said that if price closes above 19.50 on a weekly basis then I’d be worried if I was a Clinton Supporter.

So we have the NFP data this Friday. The last Friday before the election. What surprises will be pulled out of the hat by a) Janet and the FOMC, and b) the respective campaigns to try to wrest the initiative going into the last few days?  What would have to come out to create a swing in momentum for either sides?  All thoughts gladly welcome.  Hold onto your seats. Its going to be an interesting week ahead!

Trade well,

Paul

 

 

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About FXTraderPaul

A professional Trader and Coach, FXTraderPaul blogs about his adventures from the front-lines of FX Trading. A Trader and educator who can walk the walk as opposed to merely talk the talk!

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One Comment on “2nd November USD/MXN: Nature Abhors A Vacuum”

  1. ed Says:

    Good post as always Paul, On a longer term, the elections will not change the outcome. Obama has destroyed America, after being tagged into the Ring by Gorgeous George …. Clinton will catalyse the collapse by maintaining ObamaCare, and jumping taxes up.

    Interest rates in America rising, Italian referendum in December, if Renzi loses, says he will resign, French and German elections next year … It won,t only be an interesting week !!

    Liked by 1 person

    Reply

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