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11 February 2019

Trump's Influence on the Market

Love him or loathe him, it can’t be denied that Donald Trump’s presidency has been a significant shock upon trade, stock and money markets.

From day one, Trump has portrayed himself as an outsider with a preparedness to do things differently. He has made no apologies for putting America first and signalled his intent to do so almost immediately by withdrawing the United States from the Trans Pacific Partnership.

The immediate reaction from markets was a flight to quality with the US dollar strengthening against all major currencies. The reasoning for this seems clear enough that Trump’s policies would turn back the globalisation tide and the dollar would be strengthened at the expense of other currencies.

Over the course of the Trump presidency, the US dollar has strengthened against most major currencies.

The trade agenda has been further emphasized by increasing tariffs on Chinese imports and renegotiating NAFTA.

President Trump has also been very active stimulating the local economy, ostensibly by cutting tax rates. This stimulus has seen upward pressure on interest rates, further strengthening the US dollar against other currencies. While many economists and commentators have seen the tax cuts as nothing more than a massive “sugar hit” to the economy, the President remains undaunted, continuing to pursue his policies that have variously described as nationalist and isolationist.

If there’s one thing that makes markets nervous it’s uncertainty and Donald Trump seems intent on being disruptive in many areas of government administration. This uncertainty can be seen in many current affairs topics today.

The government shutdown, Trumps constant sniping at the Federal Reserve and the ongoing Mueller investigation all create degrees of uncertainty.

Uncertainty leads to a more cautious approach to finance and trade markets and it is fair to say that most players in the market find predicting exactly what Donald Trump’s next move will be.

Despite all this uncertainty, the USD and the Dow Jones are at higher levels than when Trump came to power. This can be partially explained by Trump’s business friendly agenda. However, it should be noted that the stock market in particular has been subject to massive volatility as the market responds to the disruptive agenda that has become the hallmark of the Trump presidency.

While the volatility and uncertainty can be intimidating to Forex players, opportunities will certainly be present.

    Some key indictors to watch are the following
  • Comparable 10 year debt maturity. Measure the spread of the US dollar against the Yen.
  • The US 2 year yield which is seen as a good indicator of future Federal Reserve moves. Continued rises in the 2 year yield would indicate that upward moves in interest rates are likely to occur. Increases in interest rates would most likely see a further strengthening of the US dollar.
  • Watch emerging markets in comparison to the US dollar. Key currencies to watch are the South African Rand, the Chinese Yuan and the Mexican Peso.

While the political situation in the United States remains volatile and the Democratic Party appear intent on impeaching him, it would seem that President Trump will head to the 2020 election with his electoral base intact and many of the promises he made, kept.

Many of those promises have caused nervousness in the marketplace and his continued pursuit of those policies will undoubtedly cause further uncertainty. The Trump effect is real but the key as always, is to gather as much data as possible and to make informed trading decisions.

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