The Dollar-Yen extended losses to hit a fresh session low of 113.67 on fears of global trade wars.
A moderate recovery from the early Asian session low of 113.73 quickly ran out of steam near 114.00 handle. Moreover, the 10-year treasury yield is down more than three basis points and that is keeping the USD under pressure.
As per the Bloomberg report, the quarterly correlation between the US yields and the Yen is near record highs.
Further losses likely
Trump promised to stir a "new national pride'' and protect America from the "ravages'' of countries he says have stolen US jobs. This combined with a lack of policy specifics is not only forcing markets to consider the possibility of trade wars, but also question the Trump trade.
Later today, European and US desks may hit the markets with fresh offers, leading to a further losses in the pair. The US calendar is light, hence the focus remains on the Treasury yields.
USD/JPY Technical Levels
The spot was last seen trading around 113.70 levels. A break below 113.13 (Dec 8 low) would expose 112.57 (last week’s low), under which the spot could target 111.99 (38.2% fib of Trump rally). On the other hand, breach of resistance at 114.08 (5-DMA) would open doors for 114.38 (50-DMA). A violation there would expose 115.00 levels.
Analysts at Nomura explained that Trump's inaugural address was relatively short (just 1,433 words) and high level.
"The key economic themes were putting American workers first, the need to reverse the adverse effects of trade, and the need to rebuild US infrastructure. The new White House website went live shortly after President Trump took the oath of office. It included brief issue papers on: energy, foreign policy, jobs and growth, rebuilding the military, law enforcement, and trade. These papers didn’t contain any real surprises.
The paper on jobs and growth calls for lower tax rates for both individuals and businesses. The paper on trade includes withdrawal from TPP and a call to renegotiate NAFTA. It also calls for rigorous enforcement of existing trade deals. The paper on rebuilding the military calls for higher military spending. The paper on energy calls for a roll back of regulations that restrict US energy production and transportation.
Trump chose not to highlight a number of issues that were important to his campaign. In particular, Trump did not discuss, either in his address or on the new White House website, the repeal of the Affordable Care Act (a.k.a. “Obamacare”). In addition, immigration was not a focus for Trump. It was somewhat surprising that President Trump did not take any substantive policy actions today.
We had expected him to at least reverse some of Obama’s executive orders, such as the one that established the Deferred Action for Childhood Arrivals (DACA) program that protects some undocumented immigrants to the United States who entered the country as minors from deportation.
Trump may take some of these actions in coming days. At this point, we feel that our core assumptions about economic policy under Trump – substantial fiscal stimulus from tax cuts starting in the second-half of the year, meaningful reductions over time in labor supply owing restrictive immigration policies, a moderate increase in trade protection and limited macroeconomic impact from deregulation – still seem reasonable."
PBOC sets USD/CNY at 6.8572 vs 6.8693
Analysts at Westpac offered an outlook for NZD/USD and levels.
"NZD/USD 1 day: The kiwi has failed repeatedly since Nov on probes above 0.72 but seems likely to have another try today given lukewarm USD sentiment. 0.7130 should offer support.
NZD/USD 1-3 month: Lower to 0.6800. The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed’s assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend. (21 Dec)."
The countries have already cut oil supply by 1.5 million barrels a day, more than 80% off their collective target, said Saudi Arabia’s Energy Minister Khalid Al-Falih.
Al-Falih said on Sunday that “Compliance is great -- it’s been really fantastic”.
Over the weekend, OPEC and other oil producers agreed on a way to monitor compliance.
The reaction in oil prices is muted. WTI oil and Brent oil front-month contracts were seen changing hands at $53.25/barrel and $55.50/barrel, respectively.
Analysts at ANZ explained, in his much anticipated inauguration speech, President Trump largely focused on the main principle that won him the election: a strong anti-establishment message and putting America above all else.
"“Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength... I will fight for you with every breath in my body. And I will never, ever let you down...
From this day forward, it’s going to be only America first – America first.” With numerous reports of protests and violence, clearly it has been a turbulent start to his presidency, and so the focus is not only going to be on how Trump plans to achieve his economic goals (with clear details still scant on that front), but also how he intends to unite a country that seems anything but that at the moment."
As per Bloomberg report, the USD/JPY pair is closely following the action in the treasury yields. The quarterly correlation between the two is near record-high.
The 10-year treasury yield dropped more than three basis points in Asia. In response, the Dollar-Yen pair dropped below 114.00 levels.
AUD/JPY was offered at the start of the week, dropping with USD/JPY breaking below the 114 handle with a sell-off in the dollar with a flight to safety following Trump's inauguration speech that left markets disappointed.
Trump: "Time for action!" - Watch to watch for now and how to trade Trump? - Nomura
AUD/JPY is now just starting to stabalise and AUD/USD remains robust with bulls in control at the start of the week while the dollar remains out of favor with the market that is long the Trump/Fed trade still that has been unwinding over the last few weeks this year. The Yen will continue to be under demand as the Vix and volatility in markets dominate throughout uncertain times and paints a neutral to bearish outlook for the risk-barometer that is the cross. AUD/USD: Trump fuelled a sell-off in the greenback, but dollar could bounce back
A break below 86.00 and 85.50/60 would clear a test for the 0.85 handle and recent lows of Jan 17th, a robust support line guarding the last December lows of 2016 at 83.73. 82.50 and 15th nov highs is the high of 9th Nov rally from below the ascending channel from 76.77. To the upside, 87.56 is the 15th Dec high.
USD/JPY: large early offers taking out 114 handle to the downside
Increased risks of global trade wars during Trump Presidency is pushing the safe haven metal higher in Asia.
Gold is trading 0.90% higher around $1216/Oz levels as the Dollar index is down 0.33% at 100.77. Meanwhile, the 10-year treasury yield has shed three basis points.
The USD sell-off is gathering pace, pushing the metal higher due to lack of (policy) specifics in Trump’s inauguration speech. Moreover, Trump has not softened his stance on trade after entering the White House, which is forcing markets to seriously consider the possibility of a global trade war
The US data calendar is light; hence the metal remains at the mercy of the action in the treasury yields. Unwinding of the Trump trade could gather pace in European session on fears of a rise in protectionism.
Gold Technical Levels
A break above $1218.90 (Jan 17 high) would open the doors to $1230.07 (50% Fib of Trump rally). The next hurdle is seen at $1235 (100-DMA). On the other hand, the upward sloping 10-DMA level of $1202 is a strong support, given the metal rebounded from the moving average in the previous two trading days. A break below 10-DMA could yield a sell-off to $1196 (Thursday’s low), under which the losses could be extended to $1176 (50-DMA).
EUR/USD clocked a fresh 6-1/2 week high of 1.0720 in Asia on the back of a broad based USD weakness.
The currency pair closed higher on Friday at 1.07 after Trump promised to stir a "new national pride'' and protect America from the "ravages'' of countries he says have stolen US jobs. Trump’s
signal of protectionism has raised risk of trade wars and retaliatory tariffs.
The American dollar could maintain the soft tone as Trump trade could continue to unwind. The Euro side of the story could be influenced by Draghi’s speech and Eurozone consumer confidence release later today.
EUR/USD Technical Levels
The spot was last seen trading around 1.0715. A break above 1.0768 (Dec 7 high), above which the spot could target 1.08 (zero figure). A violation there would expose 1.0851 (Oct 25 low). On the other hand, failure to hold above 1.0707 (38.2% of Trump rally) would open the doors to 1.0684 (10-DMA) and then to 1.0640 (10-DMA).
Nomura's model projects the fix to be 92 pips lower than the previous fix (6.8601 from 6.8693) and 151 pips lower than the previous official spot USD/CNY close of 6.8752. The basket implied change is 190 pips lower than the previous official spot USD/CNY close (6.8562 from 6.8752), Nomura adds.
USD/JPY has dumped in Asia before the Tokyo open, falling from 114.49 to a low of 113.74 so far.
USD/JPY is currently testing the handle to the downside after a quick recovery fro the lows, but the bears remain in control while the dollar remains out of short term favour on the back of Trump's failings in respect to deliver to the market's something concrete in respect to economic reforms in his inauguration speech that was ambiguous to say the least when it came to expectations from a Trump presidency.
Trump: "Time for action!" - Watch to watch for now and how to trade Trump? - Nomura
In respect to any bullish analyses, Marc Chandler, Global Head of Currency Strategy and team noted that the US dollar recorded an outside up day against the yen on January 18, adding, "There was follow through buying that lifted the greenback to about JPY115.60. This corresponds to a 50% retracement of the dollar's slide since retesting the December 15 high near JPY118.60 on January 3. The 61.8% retracement is near JPY116.30. The Slow Stochastics and MACDs are poised to turn higher in the coming days."
How to trade Trump?
Analysts at Nomura noted that President Trump said that the time for action had arrived and below is a list of what they will be watching in the days, weeks and months ahead.
"We expect Trump to call a pause in issuing new regulations in executive branch agencies.
We expect Congress to begin the process of deregulation by using authority under the Congressional Review Act (CRA) to repeal regulations that have been issued recently. We think that the energy sector will be a particular focus.
One of Trump’s first trade actions will likely be to formally withdraw from TPP. He will then likely initiate negations with Mexico and Canada aimed at renegotiating NAFTA. We also expect Trump to launch bilateral negotiations on trade and related issues with other countries, notably China.
We expect the Trump administration to launch a comprehensive review of performance under existing trade agreement. This investigation could lead to the imposition of new targeted tariffs within three to six months. The President has the authority to impose across the board tariffs, at least temporarily. While press reports suggest that the Trump transition team considered this option, we do not think it is likely. We also expect the Treasury Department to publish the next currency report in the next three months. A number of countries may be labeled as currency manipulators, including South Korea, Taiwan and China.
We expect President Trump to overturn, possibly within days, some of President Obama’s executive orders that affected immigration policy. In the next couple of weeks, we expect Trump to come forward with a detailed proposal for a more secure border with Mexico, including the construction of a wall along a portion of the border. Over the next several weeks, we expect the Justice Department (Jeff Sessions has been nominated to be the Attorney General) and the Department of Secretary of Homeland Security (General Kelly has been nominated to be Secretary) to start tightening up immigration enforcement.
We expect the Trump administration to put forward a plan to “repeal and replace” the ACA within a few weeks. We expect legislation replacing the ACA to become law within the first quarter.
Trump may put a freeze on Federal hiring very quickly. We expect the President to lay out plan plans for Federal spending within the next few months. Recent press reports suggest that the Trump Transition team has considered deep cuts in discretionary spending outside of Defense and Veterans Affairs.
Congress, particularly the House Ways and Means Committee, continues to work on tax reform. We expect a draft bill within a couple of months and we expect a major tax reform bill to pass the House by the end of the summer. We anticipate final passage sometime in the fall. At this point, we still expect the plan outlined by the Republicans in the House last June, which includes so-called “border adjustments” to be the basis for the draft bill that we should get in a couple of months.
Federal Reserve Leadership
Transition We expect the Trump administration to nominate someone to be the Vice Chair for Regulation within the next few months and possibly another Board member. Supreme Court We expect Trump to make a nomination for the vacant seat on the Supreme Court within the next month."
How to trade Trump?
AUD/USD is currently 0.7559 with a high of 0.7565 and a low of 0.7551.
AUD/USD was able to rally at the end of last week as the dollar failed at highs of 101.50 and closed at 100.80, -0.4% on the day on the back of Trump's speech. Once again. Trump failed to light up enthusiasm with very vague and ambiguous rhetoric around economic policy and only managed to beat the same beat of his protectionist, 'America first' drum.
As for the Aussie and domestic data, we are light this week although CPI has the potential to be a market mover considering the negative growth in Q3 and how the RBA may need to cut their chill-out summer vacation early and look again at their interest rate. Meanwhile, day two (in terms of markets) of Trump's presidency could bring a fair bit of noise to the arena with the potential to stir up a storm this week. The USD's fall on Trump’s speech leaves AUD/USD making higher highs, seemingly on track to probe above 0.7600 for the first time since 11 November, explained analysts at Westpac and noted that solid support on dips this week is likely in the 0.7430-50 area.
AUD/USD 1-3 month:
The analysts at Westpac actually expect a weaker Aussie down to 0.74 in the medium term. "The US dollar’s impressive post-election rally may have paused, but still has potential to rise further during the months ahead. The Fed’s assertive tightening bias plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that, coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data for Q4 and Q1 should improve, but these forces are subservient to the US dollar’s trend. Australia’s AAA rating will remain an issue into the May budget."
The Australian dollar tacked on a little more than 0.5% against the dollar to reach almost $0.7600 and its best level since mid-November, noted analysts at Brown Brothers Harriman, adding, "At $0.7540, the Aussie retraced 61.8% of the drop since the US election. The technical indicators are getting stretched, but only the Slow Stochastics appear near turning down. Initial support is likely to be seen around $0.7500-$0.7525. It may take a break of $0.7425 to encourage ideas that a top is in place. We suspect that above $0.7600 and the risk-reward changes and may deter new buyers."
Analysts at Westpac offered a market wrap.
Global market sentiment: The US dollar, yields and equities rose in the NY morning then fell in response to the protectionist tone of President Trump’s inauguration speech. Gold and oil rallied while GBP and CAD were hit by soft retail sales and CPI data respectively. AUD and NZD recovered most of London morning losses.
The S&P 500 had a strong morning, sitting up 0.5% as President Trump began his inauguration speech. It fell sharply to lows just above flat on the day, perhaps in response to the strongly protectionist rhetoric, then chopped around and closed up 0.3%, extending to 7 sessions an alternation between gains and losses.
Interest rates: US 10yr treasury yields resumed the mid-week rise to 2.51% (high since 3 Jan) in the NY morning but began to fall during Trump’s inauguration speech, later extending to 2.47%, little changed on the day. The 2 year treasury yield rose to 1.24% but then tracked down to 1.19%. Fed funds futures rates fell by 1-3bp along the curve, still fully pricing the next rate hike to be in July.
Currencies: The US dollar index rallied into the NY morning but failed at 101.50 and closed at 100.80, -0.4% on the day. Its key component the euro bounced off lows around 1.0630, oscillating during the Trump speech and closing just above 1.07. USD/JPY rolled over from a London high of 115.37 to a low of 114.24 in the NY afternoon, closing at 114.62, watching US yields and equities. AUD/USD fell in line with US dollar gains in the London morning, from 0.7560 to a low of 0.7517, chopped around 0.7530-55 as Trump spoke, then closed at 0.7555 . NZD/USD slid under 0.7200 after the NZ close, as far as 0.7129, later trimming losses to 0.7170 as the US dollar faded. AUD/NZD bounced from under 1.0500 to 1.0540."
Data source: FX Street
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