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FOREX: Election Ripples Clearly Showing in Front-End Vols

FOREX
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Pervasive USD strength extends across G10 this morning, with the USD Index touching 104.353 today for the highest print since early August. With the proximity to the US election nearing, two-week implied vol contracts now capture the first post-results options expiry (Nov06), and impact is clear. EUR/USD 2w vols have been marked higher to 8.9 points from 6.2 points at yesterday's close - while the same USD/JPY contract has added 3 points to trade 13.7 vol points today.

  • These vol risk premiums have cleared those seen ahead of the 2020 and 2016 votes (for which we'll go into more detail later today), but it's how these contract prices develop in the coming weeks that could help define the market reaction on November 6th.
  • A close at current or higher levels for the USD Index confirms a clean break of 104.087 (61.8% retracement for the downleg off the April high) and provides another strong signal of near-term momentum in the greenback. We wrote overnight on the strong correlation between improving Trump election odds and financial markets and also point to growing US exceptionalism in equity markets as lending background support - we see the Q3 earnings season so far as ~6% ahead of expectations on EPS metrics. 50% of the S&P 500 will have reported by the end of next week.
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Pervasive USD strength extends across G10 this morning, with the USD Index touching 104.353 today for the highest print since early August. With the proximity to the US election nearing, two-week implied vol contracts now capture the first post-results options expiry (Nov06), and impact is clear. EUR/USD 2w vols have been marked higher to 8.9 points from 6.2 points at yesterday's close - while the same USD/JPY contract has added 3 points to trade 13.7 vol points today.

  • These vol risk premiums have cleared those seen ahead of the 2020 and 2016 votes (for which we'll go into more detail later today), but it's how these contract prices develop in the coming weeks that could help define the market reaction on November 6th.
  • A close at current or higher levels for the USD Index confirms a clean break of 104.087 (61.8% retracement for the downleg off the April high) and provides another strong signal of near-term momentum in the greenback. We wrote overnight on the strong correlation between improving Trump election odds and financial markets and also point to growing US exceptionalism in equity markets as lending background support - we see the Q3 earnings season so far as ~6% ahead of expectations on EPS metrics. 50% of the S&P 500 will have reported by the end of next week.