Donald Trump’s comments on Mexico generate USDMXN leverage conservatism on election day

As the US election looms, brokers begin predicting disruptions in liquidity and the need for reduced leverage on the US dollar and Mexican peso pairs.

Political futures market

Sudden bouts of volatility in the FX markets are often caused by major news events, and retail FX brokerages often err on the side of caution in the advent of a major geopolitical feature, especially in the aftermath of the Swiss National Bank’s sudden decision to remove the 1.20 peg on the EURCHF pair in January 2015.

The US election is looming with just over a week to go, and whilst this is a planned event rather than a ‘black swan’, FX firms are beginning to demonstrate their cautious nature as the largest political event on the planet is about to take place.

Republican party candidate Donald Trump is not known for his demure candor, and has recently made some very incisive comments which are focused on his perspective on economic reforms and national security, one of which took place in early September, when Mr. Trump said that he would erect a physical separation barrier between the United States and Mexico, and have Mexico pay for it in its entirety.

This created uncertainty over the value of the Mexican peso, thus volatility between the US dollar and Mexican peso is expected in the advent – and potentially aftermath – of election day.

Dukascopy Bank in Switzerland is first off the blocks, having today stated that it will reduce leverage on the US dollar and Mexican peso pair.

Due to what Dukascopy Bank considers to be risks of high volatility, low liquidity and significant price gaps on the presidential election day in the USA, the company is taking the following measures:

On Sunday 6 November, 22:00 GMT before the market opening, the leverage on USD/MXN will be lowered to 1:10. This measure will remain in place until further notice.

On Tuesday 8 November at 10:00 GMT, the trading leverage on all currency pairs will be decreased till the level of the over-the-weekend leverage conditions on all trading accounts that have the balance over 30,000 USD or equivalent at the end of previous trading day (account balance on 7 November).

All other accounts (under USD 30,000 or equivalent) that experience a significant increase of equity due to profit or deposit on Tuesday 8 November will be treated on a case-by-case basis.

The leverage reduction is planned to be cancelled on Wednesday 9 November, 05:00 GMT. Dukascopy reserves the right to prolong it if found necessary.

 

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