I used to be indecisive but now I’m not so sure!
The correlation between words and actions will be “strained” with the new Trump Administration – meaning the markets are prepared for a complete reversal at any time.
However, it appears that there is a clear short term pattern emerging where, in the eyes of the new administration, Mexico is an “economic enemy” and Canada is an “economic friend”.
So, with that said…. Why is USD so weak?
U.S. Treasury Secretary nominee Steven Mnuchin and President Trumps comments on USD do not guarantee a lower USD but probably truncate the right tail of the distribution. This truncation reduces the overall appeal of long USD positions and topside volatility plays.
The markets appear to prefer being short fixed income (US Bonds) as the “narrative” suddenly looks way more clear than the USD story. Global reflation can happen regardless of what Trump says, does not say, tweets, does etc.
Executive orders signed so far have no USD-positive implications. There is a deafening silence so far particularly about his promise to sign an executive
order to renegotiate Nafta. There is also way too much noise on the border tax (will they / won’t they?), tax reform and other policies.
Personally, I believe USD gain this year but the tactical considerations have become almost impossible to manage as noise dominates market signals. The market remains happy to keep fixed income shorts and equity longs and leave USD alone until we have some real news. Meanwhile natural USD sellers (corporates and central banks) will most likely continue to look for rallies to lighten up exposure.
#tradesafely #fxzoo #doublehit