Equity markets throughout Asia and Europe have once again followed the positive momentum from the United States, where the Dow Jones Index finally broke the magic 20,000 number with the general consensus being that the Trump rally has resumed. This week alone the S&P 500, NASDAQ and the Dow Jones have all reached historical highs.
There is no doubting that President Trump has certainly been very busy since the official inauguration and the major news from yesterday’s National Security meeting being that President Trump has signed an executive order for a “impassible physical barrier” between Mexico and the United States, which Mexico will need to pay for according to him, in line with his campaign promises. Today represents day four of his Presidential reign and as you would expect all the global headlines are “Trump, Trump, Trump”. He does however appear to be going full speed towards fulfilling his campaign pledges; his first three days in office has now seen the withdrawal from the TPP deal, clearing the way for controversial oil pipelines and most famously pushing ahead with the plan to build a border between the United States and Mexico.
Mexican Peso fights back following wall order
While the news about President Trump signing an executive order to push ahead with a wall between the US and Mexico is dominating the headlines, the Peso is not feeling the brunt of it and is continuing to strengthen against the Dollar as it currently stands. As widely expected, it has not taken long for the President of Mexico to send out a stark message that his nation will not be paying for the wall and I guess we will all wait to see how team Trump responds to this one later today. If recent history and future projections are anything to go by, we can expect a tweet from President Trump in a few hours!
Joking aside, I do think investors should be paying attention towards how President Trump handles diplomacy regardless of the “America first, and always” rhetoric. Although the focus is currently on how the relationship between Mexico and the United Statesmoves as this story develops it is only a matter of time in my opinion before the headlines are between China/US, North Korea/US and maybe even Russia/US. Some of those mentioned might have far more severe consequences than market movements, and I personally believe that investors must remain mindful towards these risks.
Turkish Lira resumes its weakness
The weakness in the Turkish Lira is resuming with the currency appearing on track to move back towards its historic losses against the USD. Name all of the problems that can weaken a currency and Turkey is experiencing them all in my opinion, whether this is social, economic or political and it is not difficult to see why the Lira is being destroyed to be honest. I still stand by my opinion that the central bank of Turkey likely made the right decision by leaving monetary policy unchanged during their interest rate decision a few weeks ago; the Lira is in freefall and there is no stopping it. Playing hot potato with monetary policy can also backfire and hurt investor confidence further, meaning that perhaps the central bank is keeping fingers crossed that the currency stabilises before deciding what to do.
GBPUSD continues to rally:
The GBPUSD has managed to extend its gains and appears to be attempting to find 1.27 after reaching 1.2672 earlier in trading today. The rebound in the Pound is both technical and fundamental. Technically, the GBPUSD managed to conclude trading above the psychological 1.2350 pivot point last week and this has enticed technical traders. Fundamentally speaking, it is looking day by day like we are avoiding the risks of a Hard-Brexit with Article 50 expected to be invoked in two months’ time and this is supporting investor confidence.
It must be noted that since our Q1 outlook we see major resistance around the post-referendum lows at 1.2775 and any buyers from here must be mindful that there is a severe risk of investors taking profit if the GBPUSD does manage to find 1.27.
Euro could fail?!
All headlines are on Trump and Mexico, but the man tipped to become the ambassador to the European Union has been quoted saying that the Euro currency could collapse in the next 18 months. The Eurodollar has traded lower during trading today, but this is most likely technically driven after approaching the 1.08 zone highlighted in the Q1 chart below. Bearing in mind how viciously the Euro can appreciate on a round of investors unwinding on USD positions, the idea to “short the Euro” as the possible tipped ambassador has suggest could be questioned later on if President Trump himself once again makes comments on USD strength.