Foreign Exchange Market Recap - "Trumpsy Turvy" Trump wins US Presidential election, financial markets fall then rise, possible US Fed rate hike and more!


Trumpsy-Turvy

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Global financial markets began to plunge during the early results of the US Presidential election which had Donald Trump leading. Dow futures were down by 800 points just before midnight and the USD fell by 300 pips against the euro to 1.13 and down 400 pips against the yen to the 101 level. By the end of Wednesday's trading session and with the election win by Trump, the Dow reversed and reached record highs while the USD recouped its losses and posted gains reaching 1.09 against the euro and 106 against the yen. So much for the Trump slump as markets experienced its best market turnaround since Brexit and its biggest turnaround since the 2008 global financial crisis.

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The Republican sweep of the House of Representatives, the Senate, and the White House is a game changer because it breaks the gridlock that has plagued Washington over the years and unlocks the fiscal reserves of the US government. Thus, with Trump's win we get a policy shift - monetary policy stimulus is out and fiscal policy stimulus in the form of infrastructure spending, tax reform, and deregulation will be very much in. This shift comes at a time of growing criticism that central banks such as the US Federal Reserve have exhausted their use of easy monetary policy tools and that their policies aided Wall Street but did nothing for the folks on Main Street.

The USD outperformed all of its currency counterparts except for the GBP. The GBP managed to finish at the top of the heap as the election of Trump, an anti-establishment populist outsider, could strengthen the UK's negotiating hand in terms of Brexit. You see, France and Italy have their own populist anti-establishment leaders in Marine Le Pen and Beppe Grillo, both of whom also happen to be anti-EU. In early December, Italy holds a referendum on constitutional changes and if the current government losses it may very well force a new election. Notwithstanding this, there are also new elections in 2017 for the Netherlands, France and Germany. Turbulence in the EU will weaken their negotiating hand with the UK and you can see the GBP may be starting to sniff this out.

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The sweet spot for any currency is a policy mix of a neutral/tight monetary policy combined with a simulative fiscal policy – the USD will now have this. Thus, the biggest takeaway for the USD with the Trump victory is that it will get even stronger. The technical indicators are signalling more gains ahead. The only thing that we don't like about the chart is that we had a correction in price but not in time - the correction that we were looking for back to the 200-day moving average happened in one day as opposed to several weeks. With that in mind, look for the dollar index to go to the 102 level (as per the 3-year chart below) before it rests and collects itself before embarking on its next leg up powered by Trump's fiscal policies.

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Key Data Releases This Week

Forecast

Previous

MONDAY, NOVEMBER 14

10:00

EUR

ECB President Draghi Speaks

19:30

AUD

Monetary Policy Meeting Minutes

TUESDAY, NOVEMBER 15

02:00

EUR

German Prelim GDP q/q

0.3%

0.4%

03:15

AUD

RBA Gov Lowe Speaks

04:30

GBP

CPI y/y

1.1%

1.0%

05:00

GBP

Inflation Report Hearings

08:30

USD

Core Retail Sales m/m

0.5%

0.5%

08:30

USD

Retail Sales m/m

0.6%

0.6%

TBA

NZD

GDT Price Index

11.4%

WEDNESDAY, NOVEMBER 16

04:30

GBP

Average Earnings Index 3m/y

2.3%

2.3%

04:30

GBP

Claimant Count Change

1.9K

0.7K

08:30

USD

PPI m/m

0.3%

0.3%

08:30

CAD

Manufacturing Sales m/m

-0.2%

0.9%

10:30

USD

Crude Oil Inventories

2.4M

16:45

NZD

PPI Input q/q

0.9%

19:30

AUD

Employment Change

20.3K

-9.8K

19:30

AUD

Unemployment Rate

5.7%

5.6%

THURSDAY, NOVEMBER 17

04:30

GBP

Retail Sales m/m

0.5%

0.0%

08:30

USD

Building Permits

1.19M

1.23M

08:30

USD

CPI m/m

0.4%

0.3%

08:30

USD

Core CPI m/m

0.2%

0.1%

08:30

USD

Philly Fed Manufacturing Index

8.1

9.7

08:30

USD

Unemployment Claims

257K

254K

10:00

USD

Fed Chair Yellen Testifies

FRIDAY, NOVEMBER 18

03:00

ECB

ECB President Draghi Speaks

08:30

CAD

Core CPI m/m

0.3%

0.2%

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The information and opinions contained herein are gathered from sources which are thought to be reliable but the reader should not assume that the information and opinions are official or final. VBCE makes no warranty concerning the accuracy of the information and opinions, and accepts no liability for the consequences of any actions taken on the basis of the information and opinions provided. The content is for general information only and does not constitute in anyway giving financial advice.