'Trump bullish for USD, but Fed unlikely to hike rates before him invested as President' - Nenad Kerkez, Admiral Markets

NENAD KERKEZ
PROFILE
• Current Job: Analyst and Full Time Trader at Admiral Markets
• Career: Holds a MSc Degree in Economics at the John Naisbitt University (formerly known as Megatrend). Works as Senior lecturer and market analyst for Admiral Markets

View profile at FXStreet

 

Nenad Kerkez is an analyst and trader who has been in the market since 2008 and works closely with Admiral Markets as their Head Lecturer and Market Analyst. He is well known in the FX Community, ranking in the top 10 traders and analysts in the Forex Factory High Impact Members Ranking.

Nenad covers over 25 currencies on an intraday basis and has a Masters in economics. He also developed CAMMACD TM, a proprietary trading and analysis strategy. Further, he is the co-founder and head of Elite Currensea Trading, an educational website for currency traders.

What kind of effect do you expect the Trump presidency to have on the USD?

A Trump presidency should be bullish on the USD for a couple of main reasons, he aims to:

• Increase trade protectionism, which will improve the US Trade Balance;
• The supposed income and corporate tax cuts is likely to stimulate economic growth likely to induce inflationary pressures and raise the chances of rate hikes.

Is the EURUSD on the way to lower-than-1.05 levels?

EUR is dominated by rate differentials, trade risk and negative trade outlook. Further rise in US yields might spur EURUSD weakness too. At this point I can say that EURUSD is bearish and it should target 1.0596 once 1.0700 is broken and we see a weekly close below it. Technically its sold on rallies and 1.0855-90 is where now moment sellers could appear. I don’t see it lower than 1.05 levels now.

Which is the currency, besides the Mexican Peso, that may struggle the most with Trump as US President?

The currencies of the eleven other nations in the Trans-Pacific-Partnership Agreement (TTPA) will be negatively affected as Trump plans to abolish or re-draft this accord.  It is difficult to assess which of these currencies will be most affected by Trump’s pro trade protectionism stance.  
In addition, with the possibility of rate hikes in the USA, one should look at the nation’s that are exposed most to USD denominated debt.  One of these countries is Ukraine, with a high proportion of USD denominated debt and a high debt to GDP ratio. Other nations exposed to a high proportion of external debt denominated in USD includes Brazil, Venezuela, Chile, Colombia and Russia.

By the way, do you expect the MXN to regain some of the lost ground after the Election or is the MXN weakness here to stay?

With Mexico at 4.1% unemployment, GDP annual growth at 2%, and inflation at 3%, the underlying economy seems relatively robust and in good shape.  Nevertheless, the economy and the currency is facing some headwinds as result of Trump’s plans that include to:

• Deport up to 11 million illegal Mexican immigrants, which could add close to 10% to the Mexican population, this could be viewed as positive or negative to the economy, however, it depends on whether the economy could absorb the additional workers.
• Heavily tariff Mexican exports to the USA up to 35%, which will hamper the Mexican Balance of Trade and overall economic growth.
• Build a wall to prevent illegal crossings at the cost of the Mexican public, this will only add to further costs for the Mexican Government, which could be better used towards stimulating further growth instead.

Do you expect the Fed to hike interest rates in December? Will the Fed decision-making be influenced by the Trump presidency?

The US Treasuries are pricing a 25bps rate hike in the near term.  As the US CPI is still below the 2% annual rate, and given that clarity around the President Elect Trump’s policy choices are yet to be fully understood, I believe it would be unlikely for the US Fed to raise rates before Trump is officially inaugurated as President of the USA on 20 January 2017.

How do you expect Gold to behave in the upcoming weeks with the uncertainty around the first Trump measures?

Gold could continue with the bearish move as US Treasury Yields continue to rise.  Investors seeking safe-haven assets will be more attracted to Bonds as they offer a yield, unlike a speculative metal that doesn’t offer an income stream.