NEWS AND ANALYSIS

Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Collapse 2017 <span class='blogcount'>(308)</span>2017 (308)
Expand October <span class='blogcount'>(10)</span>October (10)
Expand September <span class='blogcount'>(33)</span>September (33)
Expand August <span class='blogcount'>(26)</span>August (26)
Expand July <span class='blogcount'>(32)</span>July (32)
Expand June <span class='blogcount'>(28)</span>June (28)
Expand May <span class='blogcount'>(35)</span>May (35)
Expand April <span class='blogcount'>(31)</span>April (31)
Expand March <span class='blogcount'>(38)</span>March (38)
Collapse February <span class='blogcount'>(36)</span>February (36)
Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)
 
 
 Tuesday 07 February 2017

Politics set to drive FX - PM Bulletin

 

 

It’s often said that if you can work out where the dollar is going then everything else falls into place. Certainly, there are times when a protracted dollar trend will help to drive other markets. The 25% rally from mid-2014 to March 2015 helped to depress crude oil and precious metals. But that’s really only part of the story. Crude fell a further 35% over the next twelve months even as the dollar steadied. Meanwhile gold and silver had already fallen substantially before the dollar rally really took off. But significantly they both went on to hit multi-year lows at the end of 2015 as the greenback spiked higher and the Dollar Index retested significant resistance around 100. But there are plenty of times when there’s no clear overall dollar trend and a trading range is yet to be established. It could be argued that this is the situation that we’re in right now - little more than a month since the dollar hit a 14-year high against the euro and the basket of currencies in the Dollar Index.

For the past few years the dollar has been supported by diverging interest rate policies between the US Federal Reserve and other major developed world central banks. The Fed ended its quantitative easing programme in October 2014. Then the Fed raised rates in December 2015 and again at the end of last year. Over the same period the European Central Bank (ECB) and Bank of Japan (BOJ) have kept an easing bias. Just over a year ago the BOJ adopted a negative interest rate policy and at the end of 2016 the ECB once again extended its monthly bond purchase programme. So overall this should be supportive for the dollar, particularly as the Fed has indicated that it could raise its fed funds rate by a further 75 basis points this year. This increases the attractiveness of the dollar, particularly as there’s every chance that the ECB or BOJ will continue to keep monetary policy loose.

But politics are set to exert an outsized influence on FX this year. First of all, there’s the Trump presidency. The conventional wisdom was that the dollar would weaken in the aftermath of a Trump victory yet the opposite has been the case. Trump’s election promises of tax cuts, infrastructure spending and regulatory roll-back have all boosted US growth and inflation expectations and helped the dollar burst above long-term resistance levels. Recently some of the heat was taken out of the rally following unease at some of Trump’s executive orders. In addition, Trump and members of his administration expressed the view that the dollar is too strong, accusing China and Germany of seeking to devalue the yuan and euro respectively to gain “unfair” trade advantages.

But it’s not all about Trump. There are elections taking place in Holland, France and Germany this year, and in all countries Eurosceptic parties are in strong positions. The Dutch general election takes place in just over a month, the French presidential elections are in April and May and the German federal elections are set to take place in September/October. The euro is currently coming under pressure as there’s no end in sight to the expenses scandal surrounding conservative candidate Francois Fillon. He was viewed as being National Front Leader Marine Le Pen’s strongest opponent. But his attempt to brush off the accusation that the taxpayer paid his wife and children for work which was never carried out doesn’t appear to have worked. If Marine Le Pen were to win the presidency then there’s a very real danger that France could leave the euro zone.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.