Market News & Insights
12 January 2017

Trump Dumps USD

Yesterday was President elect Donald Trump’s first official press conference in 6 months, markets were expecting, perhaps naively, that something may have changed from the election race and Trump would be presenting a detailed outline of his Fiscal stimulus. Instead it turned into another side show, with Trump attacking the press, intelligence agencies and addressing recent allegations that Russia has a dossier for blackmail against him, and finally letting his lawyer speak for far longer that he did, as they addressed Trumps’ businesses, all but emptying the business filing cabinets onto the podium. Markets did not like this and neither did the USD, Trumps relationship with markets has got off to a volatile start, and like all good relationship falls outs, it wasn’t what he said, but what he didn’t say. The USD index now down almost 2% from yesterday’s highs and the USD facing fresh selling this morning, while US equity markets initially dropped quite aggressively, they did manage to recover to close slightly higher. This sentiment did not continue overnight however, a weaker assessment of December activity in Japan knocked some shine off the rebounding JPY, but that didn’t last long and risk aversion helped USDJPY resume its downtrend, now back below 114.00 from Jan highs above 118.50. It’s been a negative start in Europe thus far, USD is facing selling just about everywhere, while GBP is an under-performer as well.

Sterling was under pressure through much of yesterday despite the majority of data confirming better growth and if anything just shows that for now, sentiment will continue to outweigh any data or even BOE expectations. UK data continues to improve, the last two weeks have welcomed consistently outperforming UK figures yet GBP was down almost 3.5% on the year at one stage yesterday, having lost ground to both Euro and USD to begin the year. Industrial and manufacturing production were both far stronger than expectations, but the fly in the ointment was the weaker trade balance figures with figures indicating that the UK’s trade deficit grew faster than expected, dispelling those notions that the weaker pound will help narrow this gap. Mark Carney was also testifying in front of Parliament and he stood back on the BOE’s assessment of Brexit impact, stating Brexit was no longer the biggest domestic risk to the UK economy, with the BOE likely to improve their forecast next month. Despite this we saw GBPUSD break down in illiquid trading, dropping below support at 1.2080 and trading as low as 1.2042 before rebounding. We traded back above 1.2300 this morning already and while we’ve seen a pullback 1.2380/1.2420 attracts. EURGBP continues to pull back from the weeks highs above .8750, current support at .8652 holds for now, while a break will favour progression back into the mid Brexit range towards .8500.

It is difficult to know what Trump will do for markets, but one thing is for certain, he will create significant concern amongst traders as he can be somewhat cavalier with his words, at times suggesting he doesn’t mean what he says, yet not afraid to speak his mind. The issue this creates for market members is that their predictions and assumptions take great stock in what is said by leaders, and in an age where computer algorithms dissect every word of rhetoric from such influencers before making trading decisions in nanoseconds, this can be dangerous. The Fed have already said their recent projections were based on Trumps apparent plans for massive Fiscal stimulus, yet we are still none the wiser as to what this might entail, the USD had rallied significantly then on the expectations of higher interest rates based on growth from Fiscal stimulus, but for now it is all hypothetical. The failure to address this yesterday has sent the USD plummeting, likely more so the liquidation of recent longs rather than a shift in USD sentiment but it now leaves the USD somewhat exposed, especially if data starts to slide. Weekly jobless claims headlines the data calendar but greater interest will likely be paid to a number of Fed speakers due across the wires through the afternoon/evening, with Harker, Evans and Lockhart, Bullard and Kaplan all due to speak at events throughout the day. EURUSD went full circle yesterday from support towards 1.0450 back up above 1.0600 now this morning, with progression higher towards 1.0780/1.0830 area a real possibility.