Be wary about another pullback-within-the-pullback

Outlook:

The dollar rout may have started with the Treasury auction, but it got fuel from the Trump press conference.

Trump failed to deliver any hard information on economic policy—taxes, deregulation, fiscal stimulus. He did have lawyers define plans to avoid conflict of interest, but also wasted time on that addendum to the security briefing, which turns out to have been about disinformation but not labelled as such. We still think it's hilarious that so many were willing to believe the story (including us). Trump surprised by say-ing he has always warned everybody travelling with him they were under surveillance while in Russia and to behave accordingly.

The press got it wrong, or rather two press outlets (of dozens) got it wrong, and Trump singled them out for scorn. The problem is he names all the press as dishonest (the fallacy of composition), undermining faith in yet another American institution. The public has low confidence in Congress, the Supreme Court, various agencies including the EPA and IRS, the police, and now the press. That pretty much leaves the military. Trump's own popularity has waned, too. His approval rating at USA Today is a mere 37% (Obama has a 55% approval rating). The sample size is less than 1000, so grain of salt.

One thing we got from Trump was a promise to haggle with drug companies about prices, and pharma stocks promptly fell. Stock market effect aside, this is one thing everyone can get behind. A teaspoon of eye allergy medicine should not cost $90. The public is tired of getting hosed by big pharma. Let's hope Trump takes on the insurance companies, too, as promised. Step 1 is getting rid of state borders and Step 2 is hiring some actuaries to look at their premiums. Okay, get rid of Obamacare if you must, but not because premiums are too high. Premiums are too high because insurance companies have us by the nose. Bottom line—there are, again, some glimmers of favorable Trump actions. If they occur.

Returning to the FX market, we need to be wary about another pullback-within-the-pullback. A big move like yesterday's hardly ever proceeds in a straight line. The euro has broken the linear regression channel and the Bollinger band to the upside, which is nice for euro bulls but a serious warning of profit-taking and a retreat to come. Continuation trades are high risk.

We also get fresh news on the institutional front. The ECB will release the minutes of the Dec policy meeting, and we all want to know how many members are clamoring for tapering. Today's eurozone industrial production numbers (Nov up 3.2% y/y) add urgency to the debate. The German Economy Ministry reported the 2016 year saw a preliminary growth rate of 1.9%, the strongest in five years. Or-ders and sentiment indicators are excellent "Overall, the picture of a solid, strong, domestically driven economy remains." This is not the set of conditions that calls for "extraordinary measures" (QE) to goose the economy.

We also get Fed speakers today, starting with Chicago Fed Evans and Atlanta Fed Lockhart at 8:30, St. Louis Fed Bullard at 1:15 and this evening, after the close, Fed Chair Yellen. We doubt much will come of the speeches, nor of the usual Thursday unemployment claims. Traders will be keeping their powder dry for tomorrow's retail sales.

We are all still struggling with the new heavy influence of political considerations in the FX mix. Just about every commentary on the dollar rout yesterday blames the Trump press conference and what Trump did or didn't say, without mentioning the Treasury auction. High demand for Treasuries has its own message to deliver, especially the high proportion of indirects, a proxy for official foreign buyers. Extrapolating only a little, a hot auction means buyers do not fear Chinese dumping.

In the wider world, SocGen's Juckes writes that the three worst performing currencies, the lira, pound and peso, "all face significant political headwinds: terror attacks and government interference in mone-tary policy in Turkey, Brexit-dithering in the U.K., and fears of U.S. protectionism in Mexico," accord-ing to Bloomberg. "The takeaway, two weeks into the year, is that as expected, politics is at least as important as economics in driving markets in 2017."

We are all third-world countries now.

Tidbit: Reuters reports Chancellor Merkel said of Brexit, "It is important that we do not allow ourselves to be divided, the 27 must act together in the negotiations." Wow. What does she know that the rest of us do not? Or maybe, what is Merkel afraid of? Is perfidious Albion doing deals behind the EU's back?