Morning Commentary: Muscle Flexing

Foreign Exchange - Morning Commentary

Muscle Flexing

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we arrive this morning, markets are generally subdued and consolidating. Global equities were upbeat in Asia only to falter in Europe; U.S. equities are opening lower with G7 interest rates moving lower today but remaining largely range bound over the past five trading sessions. The U.S. dollar (DXY) is down for the second day in a row and continues its seesaw pattern of both bullish and bearish micro trends that have left it largely unchanged since November.
We have regularly reminded our readers about how politics and markets are heavily intertwined. Political developments can and usually do have repercussions for the markets; sometimes it is immediate and sometimes it takes more time to develop. Trying to stay in the center lane and not get caught up in any political tribal warfare, I cannot help but notice that President Trump seems to be more emboldened since the conclusion of the Mueller investigation.
President Trump has been forthright and outspoken in his unprecedented attacks on the Federal Reserve and seems to be laying the political groundwork to blame the Fed for any economic slowdown down the road. He is taking a more aggressive and proactive approach to our Southern border by shaking up the Department of Homeland Security that could have economic consequences for Mexico (3rd biggest trading partner) and ourselves. And last but not least, the White House is starting trade talks with the EU and is proposing leveling tariffs on some $11 billion worth of EU goods today.
All of the above mentioned political and economic developments have not impacted the markets yet as the markets have learned to become somewhat immune to President Trump’s bluster and tweets. But, history has taught us that politics and the markets are heavily interdependent on each other. These developments need to be monitored closely as the law of unintended consequences is always at play and could impact the U.S. markets in a negative way.
  • Oil prices continue to march higher and are up nearly 50% from the end of December as supply concerns mount. While many currencies have been trading in narrow ranges, there is a strong correlation between oil prices and oil exporting countries. As oil has steadily marched higher, the Mexican peso, Canadian dollar and Norwegian krone have been buoyed by the higher prices offsetting other economic negatives.
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