We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Bullish
Gold
Bearish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The European Commission proposed an ambitious recovery fund, containing the key parts of the Franco-German aid package with grants at EUR 500bln and loans at EUR 250bln. Get your $EURUSD update from @JMcQueenFX here: https://t.co/LmIaveRajb https://t.co/LWTBVLIDBf
  • The trio of central banks overseeing the commodity currencies have already cut their main rates to all-time lows. Get your market update from @CVecchioFX here: https://t.co/OSUXrN5P3j https://t.co/3nwDel6e28
  • The tension from March continues to subside, allowing for the $USD to slide to fresh two-month-lows. Get your currencies market update from @JStanleyFX here: https://t.co/bRSRjUqg6Z https://t.co/Q35YpIZEd2
  • López Obrador hopes #USMCA will help tighten trade relationships between the US and Mexico. Get your currencies market update from @HathornSabin here: https://t.co/bZrUKSCGaS https://t.co/MZ7UoiWWRj
  • The $AUD may suffer as relations between Australia and China deteriorate amid dwindling growth prospects. Euro traders will be closely watching progress in talks about a €500b recovery fund proposal. Get your market update from @ZabelinDimitri here: https://t.co/LkEFJViPWY https://t.co/sofO135ElG
  • The US Dollar could rise against #ASEAN currencies such as the Singapore Dollar as US-China tensions seem to escalate. The Indian Rupee is also looking ahead of local 1Q GDP data. Get your ASEAN currencies market update from @ddubrovskyFX here:https://t.co/LkEFJViPWY https://t.co/ZGFaQQ3Hr2
  • The #Euro is the big driver here for DXY as it is 57% of the index. It is rising now and trying to break above the March 27 high at 11147. Get your $EURUSD technical analysis from @PaulRobinsonFX here:https://t.co/6gt3F9LuGP https://t.co/73SaL5AeXD
  • U.S. Market Analyst at https://t.co/JsVsSmefgR, Shain Vernier covers - ✔️ Safe haven assets in volatile markets ✔️ Central banks and governments ✔️ How will commodities trade in a recession Only on Trading Global Markets Decoded #podcast. Tune in here: https://t.co/1UmEzEbwiy https://t.co/EIC9YqfTec
  • Anybody else think that casting directors in movies are some of the most underrated people when it comes to giving a film/series credit?
  • No https://t.co/EoBltaP17k
Trump Reflation Trade Fueling US Yields, US Dollar Rally

Trump Reflation Trade Fueling US Yields, US Dollar Rally

2016-11-10 12:35:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Talking Points:

- Market quickly adjusting to reality of dramatic departure from Obama fiscal policy; wave election has chance to end gridlock in Washington.

- Higher yields and stronger dollar emerge as inflation expectations ratchet higher.

- See the DailyFX Economic Calendar for Thursday, November 10.

The dust is still settling around the US Presidential election results, but markets have proven quick to recalibrate their expectations. After a 'wave' election in which one party swept control of both halves of Congress as well as the Presidency, Republicans are in the rare position of being able to end legislative gridlock in Washington.

How rare is their position? Since 1965, there have only been 18 years in which one party has controlled both Congress and the White House. Regardless of ideology, whichever singluar party has tended to be in control after a wave election has pursued fiscal easing strategies: the US budget deficit grew by an average of 0.4% of GDP during those 18 years.

Now, after this election one might be tempted to channel Mark Twain and say, "There are three kinds of lies: lies, damned lies, and statistics" given how poorly pollsters did. But let's give statistics their due in this case, especially given the unique nature of the wave election and one of President-elect Trump's potential policies: a massive infrastructure spending bill in his first 100 days in office; and sweeping tax reform. It seems that a Trump administration would uphold its bargain of running up the structural deficit as typically is the case during singular party control of the government.

Necessarily, then, the market has quickly recalibrated its views on fiscal policy, given that they will be a dramatic departure from what was seen during the Obama years. (Why a massive Republican spending bill would make sense in 2017 when every Obama stimulus program has been shot down since 2010 makes little sense beyond political maneuvering; but I digress). There are then two important features to consider: the economy is already heating up, with wage growth accelerating and the unemployment rate below 5%; and US government debt has already ballooned.

For the first part, a massive infrastructure spending bill, combined with sweeping tax reform, should prove to be significantly inflationary. US yields at the long-end of the curve are rising sharply, which in turn is providing the US Dollar support by way of favorable interest rate differentials. In this light, the first 100 days in office may prove to be good for the US economy, US equity markets, and the US dollar. In consideration of the second part, US yields are also going up because of potential credit risk. The US debt burden has blown out over the past few years, and a deficit spending bill could see ratings agencies that skipped downgrading the US in 2011 revisit their outlooks. The President-elect Trump reflation trade could very-well last into Q1 or Q2'17, albeit in fits and starts, before trouble emerges (regardless of who won the US Presidency, the odds of a recession over the next four years are increasing).

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

Read more: Mr. Market, Wrong Again: Trump Wins US Presidency

--- Written by Christopher Vecchio, Currency Strategist

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

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.