Caution reigns over the markets

24 January, 2017

The week kicks off with a sharp depreciation of the US Dollar, as hedge fund managers withdrew from the Dollar causing net speculator positions drop to three-week lows at 310,475. Large investors reduced their bullish wagers before Trump while his over-the-top “dictator-like” inauguration speech lacked details on loosening the regulation and the signals needed to boost government spending.

Here is the key points his address to the nation with whatever clues they had:

Reviving the idea of “America first” in the international relations. It is likely to see bilateral agreements with leading trading countries revamped, such as China, Canada, Mexico – their national currencies looking downside in the medium-term.
A pledge to rebuild the country, return power back to people. Trump pledges to get a large-scale infrastructure rework on the roads, highways, tunnels, and airports across the US. The details on the infrastructure plans remain in the limelight with Zinc, Nickel, Copper, Aluminium and other construction metals trading in a sustainable rally.
Forgotten people in the US will be “no longer be forgotten”.

It’s clear that the markets have decided not to run ahead of themselves, but to go along with Trump stories and see where they actually lead.  The strategy shifted from guessing the steps to post-reaction with caution and uncertainty carrying the day, driving the US Dollar down. The European and UK shares plunged because investors opted to ride out the storm in the safe heavens such as Gold and the Japanese Yen while Pound recovery created additional bearish pressure on the UK stocks.

Staying ahead of the crowd and buying US Dollar on its medium-term lows may be a reasonable step, as recession risks remain kerbed after the extensive stimulus by the FED and Trump pledges. Although, growth prospects remain a subject of medium-term planning US currency may stay on the downside a little bit more in the short-term, which should be also included in your trading plan.

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