NEW YORK: It’s crunch time for traders betting on the prospect of market upheavals around the US presidential vote.
With less than three months until polling day, the commonly-traded options and futures contracts that typically match that timeframe are now firmly in play. But currency and interest-rate bets reflect quite a different view to equities, leaving some wondering which signals to trust.
Positioning in foreign-exchange derivatives suggests that November’s election – which may be hampered by the ongoing coronavirus pandemic and risks being drawn out – will be accompanied by a spike in volatility.
The US rates market also indicates the possibility of increased turbulence, but equity options paint a more nonchalant picture. “While media makes a big deal of the election 100 days away, for the markets, three months is the key, ” said Marc Chandler, chief strategist at Bannockburn Global. “The election will be messy, and absentee and mail-in votes will take some time to count.”
Options on currency futures show that the euro-dollar pair is increasingly expected to move away from a spot level near 1.1850 in the month of November, with the spread to similar October options widening to the most this year.
There are many potential drivers, of course, including Europe’s recently agreed stimulus deal and the impasse in America over fiscal issues. But the change in sentiment has also coincided with a significant drop in US President Donald Trump’s election prospects, suggesting some FX traders are articulating uncertainty around polling day. Trump has been losing ground in opinion polls and his chance to remain in the White House was around 42% as of Wednesday, according to forecasting site PredictIt.org, down from a 2020 high of 57% in late February. — Bloomberg
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