Edoardo Fusco Femiano, CFTe
Independent Analyst
The US Presidential election day is now less than five weeks away and, while Trump and Clinton are on their corners waiting for the second debate on the 9th of October, the amount of market analysis centered on politics is obviously picking up.
Despite politicians’ impact on markets is nothing new, and generally priced ahead into the markets, this year’s election offers more uncertainty than ever. Trump is an unconventional candidate and his entire campaign has offered an almost complete set of shocking, non-establishment, statements. As example, Trump has defined the North American Free Trade Agreement (NAFTA) the "worst trade deal that the US has ever signed" and declared his intention to build a wall along the Mexican border to limit immigration. In parallel, he showed consideration for Vladimir Putin up to defining him as a “strong leader”.
Logically, markets started to discount the implication of a Trump election, with potential political tensions between the US and Mexico, as well as closer ties with Russia. From a currency perspective, such political scenario is reflected by a clear rising trend in the RUB/MNX pair, now renamed as the “Trump Trade”. Indeed, this pair is very likely to reflect the general consensus about Donald Trump’s chances to become the 45th US President.
However, few brokers can offer the pair directly, leaving the only solution as to create a synthetic currency pair. Now, let’s dig into the details of it. As explained before, a synthetic currency pair is one that is not listed, or not offered by brokers and liquidity providers. Reasons are generally the limited capital flows between the two economies.
In our case we can create a synthetic pair through two sufficiently liquid pairs such as USD/MXN and USD/RUB. More specifically, we need to sell USD/MXN and buy an equivalent amount of USD/RUB. Once this is done the Dollar positions effectively cancel each other, leaving a long position on the Russian Ruble and a short position on the Mexican Pesos.
There are basically three points to closely watch in a synthetic pair trade:
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Monitoring: Due to the lack of a direct listing of the pair (in our case, a long RUB/MXN), it becomes necessary to find at least a portal with a clear chart, in order to monitor the trade and analyze it with our own traditional technical analysis tools.
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Spreads: As with any single currency transaction, there is a spread associated. In a synthetic currency trade we are opening two individual positions, so there will be a spread associated with each transaction. This makes the trade more costly than a liquid one. Therefore, we need to carefully assess how frequently is convenient for us to trade, in order not to push up spreads cost.
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Interest Rate Differentials: Since there are three countries involved in a synthetic currency transaction, we need to monitor three interest rates as they may negative or positively affect our trade.
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Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY retakes 153.00 after Japan's weak Q4 GDP print
USD/JPY kicks off the new week on a positive note as Japan's weak Q4 GDP growth tempers bets for an immediate BoJ rate hike and undermines the Japanese Yen. Investors, however, seem convinced that the BoJ will stick to its policy normalization path amid hopes that PM Takaichi's policies will boost the Japanese economy. In contrast, cooling US consumer inflation reaffirmed bets for more Fed rate cuts in 2026, which acts as a headwind for the US Dollar and should cap the currency pair.
Editors’ Picks
AUD/USD remains close to three-year top amid the Fed-RBA divergence
AUD/USD attracts some dip-buyers near mid-0.7000s during the Asian session on Monday, stalling last week's modest pullback from a three-year peak. The US Dollar continues with its struggle to attract any meaningful buyers amid bets for further rate cuts by the Fed, bolstered by the softer US CPI report on Friday. In contrast, the Australian Dollar retains a bullish bias on the back of the RBA's hawkish stance, which further acts as a tailwind for the currency pair.
USD/JPY retakes 153.00 after Japan's weak Q4 GDP print
USD/JPY kicks off the new week on a positive note as Japan's weak Q4 GDP growth tempers bets for an immediate BoJ rate hike and undermines the Japanese Yen. Investors, however, seem convinced that the BoJ will stick to its policy normalization path amid hopes that PM Takaichi's policies will boost the Japanese economy. In contrast, cooling US consumer inflation reaffirmed bets for more Fed rate cuts in 2026, which acts as a headwind for the US Dollar and should cap the currency pair.
Gold holds above $5,000 as bears seem hesitant amid Fed rate cut bets
Gold edges lower at the start of a new week, though it defends the $5,000 psychological mark through the Asian session. The underlying bullish sentiment is seen acting as a headwind for the bullion. However, bets for more rate cuts by the Fed, bolstered by Friday's softer US CPI, keep the US Dollar bulls on the defensive and continue to support the non-yielding yellow metal as the focus now shifts to FOMC Minutes on Wednesday.
Week ahead: Data blitz, Fed Minutes and RBNZ decision in the spotlight
The US jobs report for January, which was delayed slightly, didn’t do the dovish Fed bets any favours, as expectations of a soft print did not materialize, confounding the raft of weak job indicators seen in the prior week.
Global inflation watch: Signs of cooling services inflation
Realized inflation landed close to expectations in January, as negative base effects weighed on the annual rates. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains limited even in the US.
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