Dollar’s Looks to Trump and Data

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Market Drivers February 28, 2017
Australia Private Sector credit weaker
USD/JPY back below 112.50
Nikkei 0.06% Dax -0.09%
Oil $53/bbl
Gold $1252/oz.

Europe and Asia:
AUD Private Sector Credit 0.2% vs. 0.5%

North America:
USD GDP 8:30
USD Private Consumption 8:30
USD Wholesale Inventories 8:30
USD Chicago PMI 9:45
USD Consumer Confidence 10:00

It been a very quiet night of trade in the currency market, with most of the majors tracing out very narrow ranges in Asian and early European trade with very little news on the calendar and other capital markets generally subdued.

USD/JPY failed to capitalize on the rally in late North American trade yesterday as the pair stalled at the 112.80 level and pulled back to 112.35 as 113.00 continues to cap any rally for now.

The focus today will be squarely on North America as President Trump starts the day off with an interview on Fox and will end it with an address to Congress that will provide some color on his economic agenda. In between the market will a deluge of US data including US GDP for Q4, Consumer Confidence and Chicago PMI data.

After weeks of political conflict, President Trump will finally turn his attention to economic matters and markets will be eager to hear his proposals. The Trump trade, which was so dominant in FX at the end of last year, rested on three principal ideas – infrastructure spending, lower taxes and deregulation. Mr. Trump has already stated that he will not address the tax relief issue until Congress decides on legislation on the Affordable Care Act. However, traders will want to see what type of fiscal stimulus Mr. Trump will propose today. So far the emphasis has only been on defense spending which will be viewed as a disappointment by the market if it is limited just to that sector,

If US data proves better than expected showing that economic activity accelerated in Q4, then the combination of faster growth and possible fiscal stimulus could prove positive for the dollar which has been mired in very tight ranges for the past few days. For now, both fixed income and currency markets remain skeptical about the prospect of faster US growth with US 10 year yields well below the 2.50% mark. If today’s data and Mr. Trump’s rhetoric jar the bonds out of their stupor, the dollar will likely follow, but for now USD/JPY remains mired at days lows.

Boris Schlossberg
Managing Director

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