The Donald takes power

T-day: The Donald takes power (by Arnaud Masset)

Here we go, the day that market participants have been anticipating for two months. Donald Trump will officially become the 45th President of the United States. Unfortunately, we do not expect the President-elect to provide any clarity on his policies, especially those concerning his fiscal stimulus and tax cut plans, which are the most anticipated. Therefore, should Trump’s inauguration speech be in the same vein as last week’s press conference, investors will express their disappointment. The sell-off in the dollar may accelerate as expectations for a spending boost fade.

On another note, Janet Yellen addressed a speech at Stanford Institute for Economic Policy last night. The Fed Chairwoman appeared more dovish than expected and asserted that the Fed was not lagging behind in tightening its monetary policy, therefore implying that the Fed has not been slow-playing the market by only lifting rates twice in the last 13 months. While she emphasised that it would be risky to allow the economy to shoot up, it did not feel as though she was in a hurry to lift interest rates. After all, the result of the US elections has significantly obfuscated the US economic outlook, making it difficult for the Fed to give clear forward guidance.

In the FX market this morning, participants stayed on the back foot as most currency pairs traded sideways. Even the Mexican peso, which has been the best short play in recent weeks, edged up 0.40% against the greenback. The euro rose 0.15%, the CAD was up 0.17% while the yen rose 0.13%. In short, be ready for some erratic moves and emotional reactions this afternoon as The Donald grabs the microphone and delivers his first speech as US President.

Watching CAD inflation (by Peter Rosenstreich)

CAD was hit hard by the rally in US interest rate yields this week, as 2 year-yields climbed 5bp to 1.24%. USDCAD's recovery bounce extended past 1.3295 resistance suggesting further extension to 1.3457. CAD bulls have indicated that China's stronger than anticipated growth rate (Q4 GDP coming in at 6.8%) should be supportive of commodity-linked currencies. The Broad index of commodity prices CRB has reached a one-year high. However, we are seeing scant signs of recovery in Canada's primary export, oil, which continues to lack demand. Crude global oversupply remains the dominant driver despite OPEC expressed satisfaction on the adherence to recently agreed production cuts. Without a meaningful recovery in oil prices, CAD will fail to find demand momentum. Of course there is the Trump issue which could further oversupply the crude markets with energy policy adjustments. This week, the Bank of Canada suggested that interest rate cuts were a possibility should inflation downside appear. This dovish outlook will temporarily shift trader attention away from Washington DC to Ontario for the Canadian inflation report today. Headline CPI is expected to come in at 1.7% from 1.2% grinding toward the BoC 2% inflation target. Canada has struggled to generate sustained growth as GDP contracted by 0.3% in October (led by 2% in fall in manufacturing) after four months of expansion. Downside disappointment in economic data has increased the probability of a weak inflation read today. However, the rate market remains under-positioned for a rate cut by nearly pricing in a full rate hike by year-end. We remain constructive on USDCAD with expectations for an extension of bullish bounce.

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AUD/USD - Wide-Open For Further Increase.

EURUSD

EUR/USD's momentum is still largely positive despite some consolidation. Hourly resistance is given at 1.0719 (17/01/2016 high). Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued increase. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBPUSD

GBP/USD has reached 1.2400 before bouncing lower. The technical structure seems to show positive potential. Hourly resistance is given at 1.2416 (17/01/2016 high) while hourly support is given at 1.2254 (19/01/2016 low). Expected to show further consolidation. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USDJPY

USD/JPY is monitoring resistance implied by the upper bound of the downtrend channel. The road remains nonetheless wide-open towards hourly support given at 112.58 (17/01/2017 low). Hourly resistance is given at 115.62 (19/01/2016 high), Expected to see further downside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF

USD/CHF's momentum is clearly bearish. The pair has broken support at 1.0021 (08/12/2016 low). Hourly resistance is given at a distance at 1.0344 (15/12/2016 high) . Key support is given at the parity. The road is wide-open for further decline. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support