Image may be NSFW.
Clik here to view.
In terms of who traders think will win the US election, there are fewer purer forms in financial markets than the Mexican peso-Japanese yen cross, or MXN/JPY.
The peso is highly sensitive to the outcome of the result given the vastly differing foreign policy stance between the two presidential rivals, Hillary Clinton and Donald Trump.
As has been seen on countless occasions during the presidential campaign, it tends to weaken when Trump gains ascendancy in the polls and strengthen when Clinton is deemed to be in command.
The yen, as a well-known safe haven in times of market turbulence, tends to move in the opposite direction to the peso, strengthening when markets think that Trump will win and weaken when they think he won’t.
Combined, the MXN/JPY has a tendency to be extremely volatile, rising when investor sentiment is improving and declining when it’s not.
As a gauge of what markets think will happen in the election, not what will actually occur, it’s a pretty good guide all things considered.
Well, the markets spoke definitively on Monday.
The MXN/JPY rose 3.63% to 5.616, logging its largest one-day percentage gain since April 4, 2013.
Image may be NSFW.
Clik here to view.
It’s a definitive move in anyone’s language, and slightly surprising given the result is still expected to be tight even with the FBI clearing Clinton again over the use of her private email server on Sunday.
It’s also noteworthy that for broader risk assets such as stocks and emerging market currencies, a similar reaction was seen just before the UK Brexit referendum held in late June.
The optimism expressed then was proven to be horribly wrong just hours later.
While that doesn’t automatically imply that the same outcome will arrive in the day ahead, it’s a reminder that just because markets think that something will occur doesn’t mean that it actually will.
2016 has been a year of the underdog on many different levels.
We’ll likely find out whether that trend has continued soon enough.
Join the conversation about this story »
NOW WATCH: Animated map shows where your bottled water actually comes from
