As with all binary outcomes there can only be one winner and one loser and having had their fingers horribly burnt with June's Brexit vote, financial markets appear to be starting to pare some risk in the lead up to next week's presidential vote, in the event that in circumstances probably unthinkable a week or so ago, Donald Trump becomes US president.

While the so called “smart money” is still backing a Clinton win, the so-called “smart money” also backed the “remain” side in the UK referendum, and with that in mind, and knowing the passions both candidates arouse in people on both sides of the political divide, this particular “ugly” contest could still generate an awful lot of extra mileage in volatility terms.

There is the additional concern that even if Clinton wins narrowly, in light of these new FBI investigations a cloud of suspicion could hang over her presidency, while Trump skulks around in the background like a bad smell.

This re-evaluation of risks by investors not only saw a sharp sell-off in US stocks but in the US dollar as well, and gold prices gained, as markets ignored a fairly decent ISM manufacturing report and ahead of today’s Federal Reserve rate meeting.

This risk-off sentiment looks set to continue this morning with European markets set to open lower.

Open a live account

Unlock our full range of products and trading tools with a live account.

Losses can exceed deposits

Free demo account

Practise trading risk-free with virtual funds on our Next Generation platform.

There is little expectation that the Federal Reserve will act on interest rates today; in fact markets are assigning a mere 16% probability of a move, but we might get an indication from US policymakers as to whether they give stronger guidance towards a December move, or whether the statement is broadly unchanged. More importantly the market will be looking for a steer as to how they see the economy in light of last week’s GDP number, as well as the health of the labour market, and the levels of price pressures which do appear to be showing signs of stirring.

Will the 7-3 split remain the same or will we see some policymakers pull back from calling for a hike in anticipation of renewing their call in December? While the Fed will claim it isn’t political, it would be highly contentious if they did move on rates today so close to next week's vote.

Away from the US, the pound struggled despite a fairly decent manufacturing PMI number for October, which showed an expansion of 54.3, only missing expectations slightly, while the September number was revised up to 55.5. A bigger concern was the sharp jump in input costs to a 69 month high which could well translate in to higher inflation further out. Other than that new orders, both domestic and overseas and employment were both higher.

Today it’s the turn of the construction sector which has been the weakest of all the sectors in recent months, though we did see a return to expansion in September to 52.3, after three months of contraction. As far as October is concerned it is expected to see a slight slowdown to 51.9.

As far as Europe is concerned we are due the final manufacturing PMI’s from Spain, Italy, France and Germany. Improvements are expected in the Spain and Italy numbers to 52.7 and 51.4, while the German and French numbers are expected to come in unchanged at 55.1 and 51.3 respectively.

EUR/USD – having seen the euro continue to pull higher, the 1.0950 level, now once again become a support with the prospect of a move back towards 1.1140 area where a number of important moving averages converge.

GBP/USD – despite a spike up to 1.2280 the pound has yet to stabilise though it does appear to have found a base around the 1.2080 area. The upper end of the range sits near the 1.2330 area. A break below the 1.2000 area has the potential to open up the previous flash crash lows at 1.1950, and possibly lower.

EUR/GBP – appears to be trading in a range between 0 8950 and 0.9050, though we do have resistance also at the 0.9080 area. If we push below the 0.8950 area we could well slip towards the 0.8870 area.

USD/JPY – the failure to push above the 105.50 area, precipitated a sharp sell-off, down through the 104.20 area to 103.80, which could in turn see a move back towards the 102.80 area. We need to get back through 104.30 to argue a return to the 105.00 area.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.