Trump kicks the Dollar down

18 January, 2017

Trump hinted in his interview to the Financial Times that the US Dollar went for a far too extensive rally and the enthusiasm surrounding the bulls needs to be cooled. It is still unclear if this was a signal for an extensive selloff, but as we projected in our past analyses then the US currency declined, as investors take more and more caution on extending the bullish play. Especially, with the shrinking number of currency upturn drivers.

Among the Trump’s numerous blames of the Chinese authorities about the manipulation of the national currency in order to keep the US Dollar high. There was yet another verbal punch to the management of the Asian countries, which is likely to raise more pressure between the two geopolitical giants.

The European and UK stocks plunged on the possible gloomy impact of May´s speech about the Brexit approach. The general projection is that the government will sacrifice EU single market access, in order to reign to full control over immigration policies and gain freedom on signing bilateral agreements with other countries.
You might wonder “What does the access to the EU single market exactly mean to the UK?”. Well, according to export statistics, the UK sales in EU accounts for 44% of the total exports (220B Pounds from 510B) and the loss of access means that the exporters will need a switch to alternative markets or reconcile to completely revamped trading relationship within the EU. Which basically would almost mean, staying on equal footing with exporters from other regions.

It is crucial for the UK banks to retain access to the EU states, as disrupted ties threat to disorder their normal activity.  The anticipation of reduced profits works bearish for the UK stocks, which is partly compensated by the depreciating national currency, as uncertainty over the exact terms of the formal exit triggered a selloff in the European shares, as well.
The Pound seems to be trimming down declines on Tuesday in the run-up to May´s speech, as it is rising above 1.2150 level. It is thought, that the speech itself may stir the selling wave of the currency, so traders are staying on the bearish side till the details clear up.

Safe heavens surged with the Gold, Swiss Franc and Japanese Yen adding more than 1%, which was sparked by the Brexit uncertainty and Dollar depreciation. The European currency and Australian Dollar advanced 1% along with the commodity market which buoyed with Brent and WTI adding more than 1%. We would recommend traders to take a wait-and-see position, as there is strong support for the US Dollar at the level 100, and the scale of correction is hard to predict.

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