Daily Briefing

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Price Action, Swing & Short Term Trade Setups

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Talking Points:

- Today brings on the Inauguration of Donald Trump as U.S. President. This will likely dominate global media for the foreseeable future, but anticipating impact to the U.S. Dollar can be a challenge, at least initially, as Presidential Inaugurations don’t usually bring much by way of new information.

- Most U.S. Markets saw a strong move-higher after the Presidential election, but of recent have been solidifying those gains with some form of retracement. We look at three such markets below with the U.S. Dollar (DXY), the Russell 2000 (IWM) and the S&P 500.

- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our Speculative Sentiment Index Indicator (SSI).

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This afternoon at Noon Eastern Time, President-Elect Donald Trump will be inaugurated in Washington D.C. This will likely dominate headlines the world-around; but it will be difficult to anticipate any direct market price action as Inaugurations don’t traditionally bring much by the way of new, workable information for analysts and strategists to build projections off of. But if there is one thing that the world should’ve learned from this most recent Presidential Election – very little is ‘normal’ when it comes to Donald Trump.

U.S. Markets have been in a relative pattern of congestion as post-Election gains have been retracing over the past few weeks. On the chart below, we’re looking at the U.S. Dollar Daily chart, with the recent top-side drivers of the Presidential Election and the December ECB/FOMC indicated.

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Chart prepared by James Stanley

On the hourly chart below, we can focus in on this recent retracement to see price action attempting to form a short-term bottoming pattern as an inverse head and shoulders pattern has shown-up:

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Chart prepared by James Stanley

U.S. Equities

Equities markets in the United States have generally seen less give-back than what’s been taking place in the U.S. Dollar, but nonetheless have seen similar consolidation taking place. Below, we’re taking a look at the Russell 2000, which has developed a fairly clean trend-channel as price action has retraced approximately 23.6% of the post-Election move.

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Chart prepared by James Stanley

The above chart highlights how mild this retracement has been relative to what’s taken place in the U.S. Dollar. In order to try to seek out short-term support on IWM, we can dial-in a bit further to take a look at the hourly chart, with a Fibonacci retracement applied to the most recent short-term move taking place around the December ECB announcement.

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Chart prepared by James Stanley

The S&P 500 has been considerably more-resilient than the Russell 2000 of recent. The difference here is that the S&P saw a quick support test in December, ahead of the New Year and before price action established a range with higher-lows; while the Russell 2k has been grinding lower for the past month.

On the chart below, we’re looking at the S&P 500 with a focus on that near-term range that’s developed after the turn of the New Year. Notice how price action in the S&P is remaining very near those all-time highs while the Russell 2k has been retracing. In many cases, small caps can lead large caps, particularly at market turns, as risk aversion will generally show more-quickly with smaller, less stable types of names that are more widely-represented in the Russell 2k index as opposed to the S&P 500.

U.S. Markets Digest Post-Election Gains Ahead of Trump Inauguration

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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Inauguration Day Hype Means Little for US Dollar Initially

News events, market reactions, and macro trends.

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Talking Points:

- First meeting of 2017, without new staff projections, unlikely to see ECB change policy or alter course.

- ECB President Draghi's press conference matters more than the rate decision itself today.

- Get the DailyFX Trading Guides for our 2017 Trades of the Year and Q1'17 FX forecasts.

Webinar Schedule for Week of January 22 to 27, 2017

Monday, 7:30 EST/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday, 7:30 EST/12:30 GMT: Trading Q&A

Wednesday, 7:30 EST/12:30 GMT: Central Bank Weekly

The dawn of a new political and financial era in the United States, and perhaps the world, is upon us as the inauguration of Donald Trump as President of the United States is mere hours away. While his ascension to the presidency has proven to be a boon for US equities, US yields, and the US Dollar - the 'Trump reflation trade' - market participants might want to tone down their expectations for the first day in office.

The truth is, the biggest rumored impacts in policy that would impact the US Dollar - tariffs against other countries or a border adjustment tax on the supply side, and infrastructure spending on the demand side - need to be legislated by Congress before they become law. While we should hear about developments on these fronts in the first 100 days, neither comprehensive tax reform nor a stimulus bill will have a direct impact on the economy - or markets, beyond speculation and confidence - until late-2017 or early-2018 at the earliest.

In terms of trade or economics, the biggest impact that a President Trump could have day would be to use the office's power of Executive Action to take the United States out of the Trans-Pacific Partnership, or TPP, which he promised to do on the campaign trail on "day one" in the Oval. Whether that comes today or early next week, all signs point to it happening. Renegotiation of NAFTA will be on the table as well.

For traders, the best bet is to look past the inauguration hype and outline a trading plan for the US Dollar. In recent days, the DXY Index has found itself trading between two former levels of support/resistance, 100.25 and 102.05: a break below would consitute a bearish breakdown for the greenback; and a break higher would represent a reboot of the 'Trump reflation trade.' Viewing developments in the early days of the Trump administration through these lens - a technical filter - ensures that the bevy of information about policy changes about to appear on the newswires over the coming days doesn't distort one's perception of their importance to the US Dollar initially.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, US yields, and Gold.

Read more: Preview for ECB Rate Decision and Outlook for EUR-crosses

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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View our long-term forecasts with the DailyFX Trading Guides.




Yen Soars, US Dollar Sinks as Trump Trade Unwind Resumes

Fundamental analysis, economic and market themes

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Talking Points:

  • US Dollar drops as yields decline amid “Trump trade” unwind
  • Yen soars, buoyed by risk aversion across most Asian bourses
  • Information vacuum acutely increases kneejerk volatility risk

“Trump trade” unwinding is back in force at the start of the trading week. The US Dollar is trading broadly lower against its major counterparts. Risk appetite has soured, with the perennially anti-risk Japanese Yen rising alongside US Treasury bond futures while stocks across most Asian bourses fell alongside contracts tracking the S&P 500.

This is not surprising. The inauguration of the 45th US President has come and gone but greater fiscal policy clarity seems to be nowhere in sight. As argued in our weekly forecast, this has encouraged investors to scale back exposure to bets on richer corporate earnings and a steep Fed rate hike cycle envisioned after last year’s surprise election outcome.

Looking ahead, a sparse offering of scheduled economic news-flow in European and US trading hours hints that overnight momentum faces few barriers to continuation. With that in mind, the information vacuum largely responsible for current conditions is also likely to make for acute kneejerk volatility risk as investors just from one stray headline to the next, attempting to divine direction.

Where will financial markets go this week? Join a webinar to discuss the outlook live!

Asia Session

Yen Soars, US Dollar Sinks as Trump Trade Unwind Resumes

European Session

Yen Soars, US Dollar Sinks as Trump Trade Unwind Resumes

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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