Financial markets almost dictated by Trump

February 2, 2017 09:33 AM

The series of pending elections in Europe, ongoing Brexit developments and heightened Trump uncertainties should ensure that political risk remains a recurrent market theme for the first quarter of 2017. Global stocks have been subdued amid the rising market jitters with Asian shares trading mostly mixed during Thursday’s trading session. The risk-off trading attitude from Asia should infect European markets with the bearish domino potentially capping gains on the financial market. It is becoming quite clear that financial markets have been heavily impacted by Donald Trump’s repeated verbal assaults and such continues to keep investors on edge. With the clash of optimism and fear fuelling global markets rather than fundamentals, extreme levels of volatility may be expected across the board moving forward.

Dollar remains pressured
The growing threat of Donald Trump moving forward with the protectionist policies while overlooking the proposed fiscal stimulus continues to leave the Greenback vulnerable to heavy losses. Sellers have exploited the lack of clarity provided on the market shaking fiscal promises to attack the dollar ruthlessly with the Federal Reserve’s passive stance in Wednesday’s FOMC statement adding insult to injury. Although fundamentally speaking, sentiment remains bullish towards the United States amid the solid economic data, the unknown labelled as Trump could de throne the dollar. Investors may pay extra attention towards Friday’s NFP report which if exceeds expectations could provide the dollar a lifeline.

From a technical standpoint, the dollar Index is under pressure on the daily charts. The Index currently resides within a bearish channel while technical lagging indicators such as the MACD point to the downside. Previous support at 100.00 could transform into a dynamic resistance which encourages a further selloff towards 99.00 and potentially lower.

Super Thursday’s Sterling selloff
The fact that Sterling was exposed to steep losses on Thursday despite the Bank of England raising the UK growth forecasts for 2017 continues to highlight how the Brexit dilemma has repelled investor attraction towards the currency. Markets were expecting the BoE to tilt to the hawkish camp amid the accelerating inflation but the central bank seemed to be in no rush to take action and such has left Sterling bullish investors empty handed. Uncertainty still remains the name of the game when dealing with the Pound with further selloffs likely as anxiety mounts ahead of the article 50 invoke in early March.

Gains seem to be limited on the Sterling/dollar with the current downside momentum potentially bringing prices lower towards 1.2500. A sharp breakdown and daily close below 1.2500 should encourage bears to drag the GBP/USD lower back towards the pivotal 1.2350 level. Although the parity dream on the GBP/USD may be pushed back in the longer term, the Brexit woes have made Sterling a seller’s dream.

Commodity spotlight – Gold
A vulnerable dollar coupled with the persistent Trump uncertainties has bolstered gold’s safe haven allure with the metal charging to a fresh three-week high above $1,220 during Thursday’s trading session. This yellow metal seems to be back in fashion in the short term with further inclines expected as investors scatter from riskier assets to safety. Although there remains a threat of Friday’s NFP capping gains on gold, bulls should remain in control above the $1195 higher low. Technical bullish traders could utilise the breakout above $1,220 to propel gold prices higher towards $1,230.

About the Author

Lukman Otunuga is an FXTM research analyst