Investors sail to safe harbours

1 March, 2017

The Dollar index flattened as Trump gave a speech ahead of the Congress meeting. The president left the market without any clues on the taxation issue saying it is postponed till the cancellation of Obamacare, which has been the biggest reform in healthcare since the mid of 1960. The Greenback fell but then recovered to the area of 101, indicating that a part of the investors expected the bullish trend to extend, primarily due to rising odds of FED’s March hike. This assumption is backed up with the FED funds rate which currently sees a 40% chance of positive FED decisions. Prior to Trump´s comments on Monday, the odds were at 28%.

Yields of the bonds also rose due to the selloff, as traders expected Trump cues on the increase of government spending to convince the FED in the need of a rate hike earlier than planned.

Part of the investors shifted to defence assets, which caused an upturn of the Japanese Yen and Swiss Franc, traditionally known as the “safe harbours”. EM currencies halted growth attempts as the threat of sharp Dollar upswing on Trump frightens away the majority of investors.

Speculative pressure on Dollar aided the Pound and Euro trimming down declines, but likely not indicating a trend reversal. EUR/USD added 0.2%, Pound stalls near the opening of 1.2440. Selling on intraday peaks with short SL near the 1.0650 and 1.25 is likely to become a good attempt to join the bulls’ stream on Dollar.

The rout on the commodity market indicates that some investors will opt for riding out the storm in defensive assets. Oil prices dropped despite the production cuts in China and OPEC. After the Trump address prices are likely to renew growth especially if his rhetorics convinces investors that US growth implies rising fuel consumption. Precious metals trade in a red zone as the odds of a rate hike in March is rising. This is another proof that Fed action in March is seriously considered by the majority of investors.

As smart money took flight from EM, Russian RTS and MOEX dropped more than 1 percent. Fundamentals suggest they are oversold in short-term which seems to be corrected with Trump clearing up government steps on the support of the economy.


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