Week Ahead Trump Speech Fails to Reignite Dollar Rally

Alfonso Esparza MarketPulse

US 45th President is sworn in with markets looking forward to first 100 days

The dollar is mixed against majors after the inauguration of President Trump. The markets did not get enough information on Friday to support the dollar as the tangible pro-growth agenda items were missing from the event. Trump’s speech was delivered in his combative style and he made a pledge to put America first. The protectionist message did not resonate with markets as the dollar and stocks fell.

Safe haven assets rose with gold above $1,200 as Trump addressed the American people for the first time as their President. The battered Mexican peso got room to breathe and appreciated more than 1.5 percent versus the dollar as NAFTA’s fate continues to be uncertain. The focus on Trump’s policies moves to next week where his executive orders will give insight on how strong his first 100 days will really be like.

The week of January 23 to 27 will have little in the way of scheduled economic events with the United Kingdom’s Supreme Court ruling on EU membership on Tuesday, January 24 at 4:30 am and the first estimate of GDP numbers for the United States on Friday, January 27 at 8:30 am the main highlights. The U.S. dollar will continue to lose traction until there is more clarity on how Trump’s policies will make his campaign promises a reality.

The EUR/USD gained 0.373 percent in the last five days. The single currency is trading at 1.0672 in a week that featured the European Central Bank (ECB) keeping rates on hold and the inauguration of the U.S. president Donald Trump. His surprise victory as once again pollsters underestimated their own bias started a rally in the markets and the U.S. dollar as his comments on infrastructure spending and fiscal stimulus could deliver the growth he promised during his campaign. The interest rate divergence as the U.S. Federal Reserve is poised to hike 3 or 4 times this year if inflation starts moving near or above the central bank target due to Trump’s action put downward pressure on the EUR. The Euro zone registered positive inflation numbers, but nowhere near what is needed to get the economy of the bloc out of the danger zone. Specially in such a politically charged environment as France, Germany, the Netherlands and probably Italy will host elections in 2017.

Gold gained 0.768 percent this week. The XAU/USD is trading at $1,205.40 after Donald Trump took the oath as America’s 45th President. The yellow metal was in demand this week as uncertainty on what the first hours of a Trump presidency could bring. The eventual mixed message delivered on Washington was similar to the press conference earlier in the month which depreciated the dollar versus the safe haven commodity. There was the possibility that between Trump being sworn in and the start of the parade there was room for executive orders to be signed. The emphasis has now shifted for Monday and the rest of the first 100 days of Trump’s presidency.

The USD/MXN gained 0.384 on a weekly basis, but the peso was one of the biggest winners in the last 24 hours. The currency pair is trading at 21.62 after starting the period barely under the 22 price level. The lack of clarity from President Trump on how he plans to establish trade deals that benefit only the U.S. reduced the pressure on the Mexican currency. Although there was plenty of tough talk regarding trade both in the speech and in the newly unveiled White House website it is still unclear what type of measures Trump will take, if any, to undo NAFTA. The Mexican central bank Banxico will remain under alert to a sudden loss of value for the peso to try and stem the downward pressure.

Market events to watch this week:

Tuesday, January 24
4:30am GBP EU Membership Court Ruling
7:30pm AUD CPI q/q
Wednesday, January 25
4:00am EUR German Ifo Business Climate
10:30am USD Crude Oil Inventories
4:45pm NZD CPI q/q
Thursday, January 26
4:30am GBP Prelim GDP q/q
8:30am USD Unemployment Claims
Friday, January 27
8:30am USD Advance GDP q/q
8:30am USD Core Durable Goods Orders m/m

*All times EDT

Author

Alfonso Esparza

MarketPulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs.

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