Global stocks marched into gains during trading this week after the renewed Trump fuelled optimism bolstered investor risk sentiment. Actions speak louder than words and the fact that Donald Trump has signed numerous executive orders since his inauguration continues to heighten hopes of the proposed fiscal stimulus measures materialising. Asian shares were mostly higher on Friday ahead of the Lunar year holiday while European markets edged lower amid profit taking. With the Trump effect back with a vengeance and optimism rapidly rising over Trump’s pro-business policies elevating growth, Wall Street could maintain gains moving forward.
While the current gains displayed across global stocks are highly impressive, the lingering uncertainty could obstruct further upside in the longer term. Concerns are currently heightened over Trump’s protectionist rhetoric while political risks across the globe weigh heavily on sentiment. Investors should remain diligent and be prepared to expect the unexpected this quarter when factoring the messy cocktail of market themes that may spark extreme levels of volatility.
Dollar Stabilizes above 100.00
The Greenback regained its dominant attitude on Thursday as prices stabilized above 100.00 after the Trump effect and optimism over the health of the US economy re-attracted bulls to install heavy rounds of buying. Sentiment has turned bullish towards the Dollar in the short term and further gains could be expected if buyers exploit the upside momentum created from fiscal stimulus-driven rally. Much attention may be directed towards Friday’s fourth quarter GDP report which could offer some clues on how the US economy fared in 2016. A positive release that exceeds expectations may provide the Dollar an additional welcome boost that could propel the Dollar Index higher towards 101.00.
Although Donald Trump has revived the Dollar this week, there is a threat of him exposing the currency to downside risks in the future if the protectionist stance and overall uncertainty repels investor attraction. As of writing, the Dollar Index currently hovers around 100.63 with a breakout above 101.00 encouraging a further incline higher towards 102.00.
Sterling hovering around 1.2500
The Sterling bulls were exhausted on Thursday despite the positive fourth quarter UK GDP of 0.6% and such continues to highlight how the Brexit woes have damaged buying sentiment towards the currency. It has become very clear that the Brexit developments continue to dictate where the Sterling trades with uncertainty to likely limit upside gains. Sentiment remains firmly bearish towards the Pound with sellers potentially exploiting any further uncertainty or even a resurgent Dollar to drag the GBPUSD lower. Technical traders may pay close attention to how the prices react to the previous 1.2500 resistance level. A breakdown and daily close below 1.2500 could encourage a further selloff back towards 1.2350.
Commodity spotlight – Gold
Gold found itself exposed to painful losses this week after the renewed investor risk appetite from the Trump effect and Dollar’s resurgence encouraged sellers to attack the metal incessantly. The yellow metal currently trades around a fresh two-week low at $1181 and is at risk of trading lower if the fourth quarter GDP for the United States exceeds expectations. The downside momentum is strong and a breakdown below $1180 could spark a further selloff towards $1160.