Markets subdued as momentum against Trump’s immigration ban grows

January 30, 2017 02:27 PM

Following last week when the Dow Jones, NASDAQ and S&P 500 all reached record highs, with this positivity having a similar impact on both the Asian and European markets; there is now an air of caution throughout the financial markets as the new trading week gets underway. It is very possible that the reason for this caution, and the European markets slipping lower is due to investors digesting those record moves seen in the U.S. last week. There is also no denying that the turmoil caused by the Trump administration banning certain nationals from entering the United States, which has caused anger worldwide, could be linked to the subdued atmosphere.

While investors were very quick to price in the expected impact that deregulation, infrastructure spending and job growth could have on the U.S. economy, I find it very difficult to believe that after pricing in heavy premiums based on fiscal promises, that investors are not now reconsidering what damage Trump might do by implementing other promises that supplemented an incoherent and ranting political campaign. Whether it is building a wall, banning certain nationalities, starting a trade war or pretty much anything else President Trump may do to upset people, it does risk both creating and deepening a negative perception of the U.S.

What if someone now reacts by banning U.S. products, or even worse U.S. nationals from entering their nations? What if investors now decide to take money out of U.S. funds? Over one million Britons have already reacted by signing a petition to stop an upcoming visit from Trump to the United Kingdom, something that will put even more pressure on Theresa May as she has not only just concluded a meeting with the new President but is already under pressure to meet her own deadline to invoke Article 50 within the next two months. Although it is expected and understood that the UK will be aiming to strengthen relationships around the world following the result of the EU Referendum, I am unsure how people will react to Theresa May strengthening a relationship with the United States that appears on track to isolate itself from globalisation.  

GBP/USD at risk to falling below 1.25
The GBP/USD is at risk to declining for the third successive day as investors continue to take profit after the pair reached a 6-week high marginally below 1.27 last week. Investors are still reluctant to consider longer-term buying positions on the British Pound with the continuous uncertainty around Article 50 being invoked around the corner. It will likely require another round of unwinding on USD positions or for the date to be delayed for the invoking of Article 50 to send the Pound back to the higher 1.20’s.

EUR/USD continues to meet sellers
The Eurodollar is continuing to face near-term downside pressure, with the currency pair dipping back to 1.06 after opening and climbing above 1.07 as investors digested the news around the United States over the weekend. Generally speaking the USD is still trading higher against most of its major trading partners including the British Pound, Euro, Swiss Franc, Australia and New Zealand Dollar, as well as the Canadian Dollar. As long as the Dollar does not fall victim to a round of selling, the near-term pressure on the Euro should persist as the Eurodollar gradually reverses after from its gains since earlier in January.

Dollar slipping against emerging currencies
Despite the dollar trading higher against most of the G-8 currencies, the USD has slipped lower against a host of emerging market currencies. The Turkish Lira, Mexican Peso, Thai Baht, Indian Rupee, Indonesian Rupiah and Philippine Peso have all strengthened at the start of the week. This is likely not due to the protests taking place throughout the United States, but instead linked to the overwhelming consensus that US interest rates will be left unchanged later this week. With that being said the news headlines are being completely dominated by politics.   

Turkish Lira rebounds by 1.4%
This is likely just a small recovering following what has been a brutal couple of months for the Turkish Lira, but the currency has is the major market mover today with the U.S. dollar/Turkish Lira (USD/TRY) currency pair declining by over 1.4%. Despite what looks on headline as a significant move, Turkey is still plagued by a multitude of different social/economic and even political problems that makes it difficult to believe that the Lira will be able to recover much lost ground.

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