USD/JPY Wilts Under Trump Turmoil

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Market Drivers January 30, 2017
USDJPY gaps lower on open
BOJ worried about Trump
Nikkei -0.51% Dax -0.81%
Oil $53/bbl
Gold $1191/oz.

Europe and Asia:
JPY JN Retail Sales 0.6% vs. 1.6%
EUR EU Spanish GDP 0.7% vs. 0.7%

North America:
USD Core PCE 8:30
USD Pending Homes 10:00

FX markets were generally quiet with many of the dealing centers in Asia closed for Chinese New Year holiday today, but the turmoil caused by the Trump administration’s order to bar certain nationals from entering US created a gap opening in USD/JPY which it has failed to fill so far.

USD/JPY opened sharply lower with respect to Friday’s close dropping to a low of 114.26 before staging a rally in early Europe. But the pair failed to retake the key 115.00 figure as concerns over growing tensions between US and its allies generated risk aversion flows for most of the night.

Mr. Trump’s hugely controversial travel ban from selective Muslim countries created an uproar both at home and abroad as US airports at major points of entry were filled with raucous protesters, immigrations lawyers and stranded travelers. The executive order was stayed by the judiciary on constitutional grounds but the policy remained in effect until both parties could make their case in court.

The move has created massive furor amongst the US allies as well with UK gathering more than 1M signatures calling for barring Mr. Trump’s entry into the country. The move will now force the Parliament to argue that issue – an unprecedented event where US primary ally in Europe would debate the issue of banning the President from entering its borders.

So far, the geopolitical tensions remain more theater than crisis but are clearly starting to weigh on the markets. The Trump Trade which was based on the notion of quick deregulation, enhanced spending on infrastructure and the promise of much faster economic growth is in danger of being turned into a Trump Fade as protectionism, higher consumer costs and political tensions with allies and enemies alike threaten to cast a pall on any business investment going forward and stop growth in its tracks.

The calendar today is generally light, with only personal income/spending on the docket. Still, it will be interesting to see if the bump in consumer sentiment is translating into an increase in economic activity.The markets are looking at a healthy bump in personal spending to 0.4%, so any miss of that number could cause more downward pressure on USD/JPY.

The events over the weekend have certainly created a new concern in the currency markets and the longer USD/JPY struggles with the 115.00 figure the more likely it will be that the pair could see a much steeper correction as the week proceeds.

Boris Schlossberg
Managing Director

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