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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