Justin Pugsley - Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Justin Pugsley
Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Profile

Trump USD comments usher in period of greater forex volatility

Just before becoming President, Donald Trump told The Wall Street Journal that the USD is “too strong” and that “our companies can’t compete”, hardly surprising words for a populist promising to bring home manufacturing jobs. But can he get his way?

Naturally, USD maintained its downward descent on the remarks and has been slipping lower since the beginning of the year as traders were taking profits ahead of Trump’s inauguration.

Though the comments were mainly about China, they could nonetheless be important for the strength of the USD and reflect policy intentions.

The desire for a weaker USD will of course clash with Trump’s aim of pushing US economic growth to 4%, big tax cuts, deregulation, cutting immigration at a time of low unemployment and simmering inflationary pressures. Indeed, the US Federal Reserve is quickly turning more hawkish and interest rates in the real economy are steadily pushing higher – all of which makes USD more attractive.

US Treasury secretary nominee Steven Mnuchin then told a senate hearing that a strong currency was important over the long-term so the US remains attractive to investment. Mnuchin was reading from the same script previous administrations have stuck to for decades now about a strong USD policy. Mnuchin saw no contradiction with Trump’s remarks explaining that the President was not talking about long-term USD strength.

This raises several issues for traders:

  1. Going forward USD volatility will likely increase as Trump is prone to off-the-cuff remarks & tweets and not only seems to contradict his own officials, but sometimes himself
  2. A weak USD policy will trigger tensions with the Eurozone and Japan and accentuate them with China as up until now the US is the only major country not overtly pursuing a weak currency policy. If it joins the devaluers it will get very messy and volatile in the currency markets
  3. An official weak USD policy – if adopted – could lead to trade wars as Trump’s pro-growth policies will make it very hard, if not impossible, to keep the greenback in check for long

And despite concerns about Trump in the financial community and his unpredictability, the US is likely to remain a magnet for investment and the USD a safe-haven currency. Also, compared to the Eurozone, the US looks more dynamic and stable and appears more attractive than Japan and many other developed economies for long-term investment.

It will be important to see what happens over the next three months as the new administration sets out its economic policies and priorities and explains how it intends to achieve them. Indeed, USD could be off to the races again in the weeks and months ahead regardless of Trump’s feelings.

TECHNICAL ANALYSIS: EUR/USD looks set for modest short-term gains

EUR/USD seems to have turned a corner as growth has picked up in the Eurozone and even inflation in some parts of its such as in Germany. Meanwhile, traders have been taking profits on their USD Trump trade as that rally has understandably stalled after a good run.

EUR/USD seems to have turned a corner as growth has picked up in the Eurozone and even inflation in some parts of its such as in Germany. Meanwhile, traders have been taking profits on their USD Trump trade as that rally has understandably stalled after a good run.

Other potential resistance levels include 1.0763 and 1.0857, while support can be found around 1.0599, 1.0535, 1.0407.

comments powered by Disqus

Trader Stories

Latest Interviews

Statement on CHF market volatility

Business as usual for MahiFX despite Swiss franc movement

Full Interview

MahiFX does not provide investment advice or recommendations, and no material on this site should be construed as such. Opinions are those of the authors and not necessarily those of MahiFX, its officers or directors. MahiFX’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose some or all of your deposited funds.