A day after their biggest daily gains of the year so far, U.S. equity indices are heading for an unchanged open on Thursday as investors await more commentary from the Fed ahead of its blackout period.
Brexit-fuelled anxieties have exposed Sterling to sharp losses this week with sellers exploiting the rising uncertainty to attack the GBP/USD currency pair to a fresh six-week low at 1.2260 during trading on Thursday. Sentiment is turning increasingly bearish towards the Pound and the terrible combination of soft domestic economic data from the UK coupled with political risk could ensure the currency remains pressured.
The sharp drop in the price of oil has weighed heavily on the oil-linked Canadian dollar today. The USD/CAD currency pair has surged above 1.3200 handle and was heading toward 1.3280 resistance at the time of this writing. The USD/CAD’s rally has come despite an otherwise down day for the U.S. dollar, which has been hurt by soft data and anxiety ahead of President Donald Trump’s speech tonight.
Many economists, as well as business owners, are concerned that Donald Trump's protectionist stance is going to have a serious impact on U.S. growth, and for those with an interest in forex data and currency futures, this means depreciation of the dollar over time. Here, we look at what protectionism could mean, and whether there are other policies under Trump that may be able to offset the negative view on this in economic circles.
The signs were there for a stock market plunge, which is exactly what has happened today. Gold, a perceived safe-haven asset, had been rising strongly of late despite the dollar’s strength and the equity market rally. The Japanese yen, likewise another safe haven asset, has been firm and today it has got firmer.
Monetary policy guidance and strong U.S. data failed to provide another push higher for the greenback last week. Fed Chair Janet Yellen made a blunt statement in her testimony before Congress that it would be unwise to wait too long to tighten monetary policy.
The U.S. dollar is higher against most major pairs ahead of the Presidents Day long weekend. American economic fundamentals had a strong week, but failed to gain traction given the rise of political risk as Trump's Administration continues to send mixed messages to markets. The stock market and safe havens like gold and the Japanese yen finished higher against the dollar in a very political week.
Given the still bullish market structure (because of the double bottom reversal formation at 1.20), we wouldn’t be surprised if the GBP/USD were to bounce back at around 1.2400 once again, especially as the EUR/GBP was correspondingly testing its own resistance around the 0.8580 level at the time of this writing.
The markets are forward-looking and investors will likely pay more attention to up-to-date data next week. The latest measures of consumer inflation, earnings, employment and retail sales will all be released between Tuesday and Friday. Political uncertainty in Europe could weigh on EUR/GBP.
The heightened political risks across the globe and persistent Trump uncertainties have sparked a sense of unease which continues to pressure the financial markets. Global stocks remain extremely volatile amid the jitters with gains potentially limited as the era of political uncertainty encourages investors to scatter away from riskier assets.