The Long and Short of It: FX Brokerage Reveals Trading Trends Ahead of the Inauguration

With President Trump hours away from taking office, political pundits, traders, and experts up and down the country are preparing to eat their hats -- or gloat, depending on which side of the fence they occupied during the election. For financial analysts, however, Trump's surprise win poses more of a problem. When it comes to the 45th President, normal rules don't apply.

While Wall Street is seeking cover from uncertainty and trading in a narrow band, Forex traders all over the globe are starting to lay down their cards.

International broker ForexTime (FXTM) has revealed that 55% of its clients were trading long on Gold in the run-up to the inauguration. The precious metal gained USD40 over a period of five trading days recently.

"Trump changed the market sentiment towards the USD over the last few days," explains Jameel Ahmad, Vice-President of Corporate Development and Market Research at FXTM. "The markets took his comment that "The Dollar is too strong" seriously and many traders responded with defensive positions. We've seen this in the number of clients trading long on Gold, a safe-haven investment."

Perhaps even more interesting are the statistics FXTM released on EURUSD trades. They show a market prepared for every eventuality. The majority of traders might be long on Gold, but a whopping 60% have been trading short on the currency pair ahead of the inauguration.

"Overall, we are experiencing a high level of volatility in the markets," Says Ahmad, "And it's not all down to Trump. The impending triggering of Article 50 by the UK, not to mention uncertainty about US financial policy going forward, has combined to turn the normally quiet January into an exciting trading month."

Wednesday saw Theresa May set out her plan for Brexit, and she did not leave any doubt that it would mean a thorough and decisive exit from the single market economy. The UK premier was quoted as saying "the UK cannot possibly remain within the European single market, as staying in it would mean not leaving the EU at all". Sterling had been sliding since July's announcement of Brexit (19%), but it rallied by 3% following this announcement -- the biggest single-day rise against the Dollar since 2008. The market expected May's Brexit stance, and the lack of surprises has helped the pound to hold its position.

As the inauguration looms, the big question now is whether the markets will settle back into a more predictable rhythm. With a wildcard in the White House, only the most experienced analysts will be nailing their colours to the mast. After all, Trump is the first president who reduced the value of a company by US$1.2billion armed with nothing but a Twitter account; he can create ongoing sparks in market volatility if this stance to make public statements about companies continues.

Everything hinges on the inauguration speech and his choice of rhetoric. A focus on business and job creation should see the markets rally, and will help bolster US shares (which wobbled following his last press briefing, when he failed to discuss any tax and stimulus plans). A mention of China, however, particularly in conjunction with the phrase ‘currency manipulation,' is likely to keep the forex market on its toes.

"For the moment, the markets are volatile. FXTM is encouraging investors to use effective risk management policies before placing positions," Ahmad says. "We know from past market behavior that a period of unwinding in USD positions can encourage sudden bounces higher in the Eurodollar. If the incoming President does make a comment on the USD strength, there is a risk to another spike in the Eurodollar."