Daily Commentary • Trump’s inauguration spells further downside for USD On Friday, Donald Trump was officially sworn in as the 45th President of the United States. In his inaugural address, the new President reiterated many of the themes of his campaign, such as the need for increased border security and protectionism, but there was little in the speech related to his fiscal or regulatory policies. The most noteworthy economic comment was on infrastructure spending, where he pledged that: “we will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation”.
• The US dollar traded in a volatile manner against its major counterparts during the inaugural speech, before assuming a direction and drifting lower in the aftermath, quite possibly due to the lack of clarity regarding the government’s upcoming fiscal and regulatory reforms. We believe that the current pullback in the dollar could continue in the coming days, as investors become increasingly impatient with the absence of details over the nation’s fiscal direction. USD/JPY broke below the support (now turned into resistance) level of 114.40 (R1) and during the early European morning Monday, the rate looks to be headed for a test near the 113.20 (S1) support barrier. If the bears are strong enough to overcome that hurdle, we may see the pair test the 112.60 (S2) territory again, marked by the lows of 17th of January.
• The dollar lost some ground against the euro as well. EUR/USD broke above two resistance (now turned into support) barriers in a row in the aftermath of Trump’s inaugural speech. At the time of writing, the pair is trading a few pips above the 1.0750 (S1) zone. The price structure on the 4-hour chart still suggests a short-term uptrend as such, we would expect the rate to move higher at some point for a test of 1.0800 (R1), which is the lower boundary of the wide sideways range between 1.1500 and 1.0800 (R1) that contained the price action from January 2015 – November 2016. A decisive break above that key territory would mark a forthcoming higher high on the 4-hour chart, and could signal that the aforementioned sideways range is back in force. A move like that could carry greater bullish implications, perhaps for a test of the 1.0880 (R2) resistance area.
• Looking ahead, the dollar is likely to remain very sensitive to any news with regards to the size, composition and implementation of the new administration’s fiscal plans. The next date when we are likely to get some concrete news on these issues is the 6th of February, which is the deadline for the President to submit his budget proposal to Congress.
• Today’s highlights: During the European day, the economic calendar is very light. The only noteworthy indicator that is due to be released is Eurozone’s preliminary consumer confidence index for January.
• We have two speakers scheduled for today: ECB President Mario Draghi and ECB Governing Council member Peter Praet.
• As for the rest of the week, on Tuesday, the UK Supreme Court will announce its decision on whether Parliament should have a say in triggering the official process for leaving the EU, Article 50 of the Lisbon treaty. The outcome is likely to dictate the pound’s short-term direction. Given that Parliament is seen as favoring a “soft Brexit”, if the Court decides that lawmakers should be involved with the Brexit process, we could see another relief rally in GBP. From Eurozone, we get the preliminary manufacturing and services PMIs for January.
• On Wednesday, during the Asian morning, Australia’s CPI for Q4 is coming out and expectations are for an acceleration. Later in the day, we get New Zealand’s CPI data for Q4 as well.
• On Thursday, we get the first estimate of Q4 GDP from the UK.
• On Friday, we get Japan’s CPI data for December. In the US, the first estimate of Q4 GDP and durable goods orders for December are likely to attract market attention.
• Support: 113.20 (S1), 112.60 (S2), 111.40 (S3)
• Resistance: 114.40 (R1), 115.50 (R2), 116.50 (R3)