Trump and Schaeuble are marketmakers this week.

Posted Monday, February 6, 2017 by
Dave Green • 3 min read

What is happening today in Asia?

Australia has already published data on retail sales, which do not live up to expectations. This upset traders of the Australian dollar. Asian stock markets are growing due to the positive dynamics in the banking sector, and no wonder since in the last week, the administration of Trump promised to weaken the regulation of financial institutions. Shares of Mitsubishi UFJ Financial Group, for example, are joyful from this news since it will bring updated yearly highs. The Dollar as a whole feels the brunt of Friday's fall, although major currency pairs remain trapped in narrow ranges waiting for the beginning of a more active European trading session.

Schaeuble also not satisfied with the weak euro.

It is a relatively quiet macroeconomic calendar week and this will allow investors to switch back to the geopolitics. This is likely to add a dynamic market nervousness and volatility. Trump and his aggressive comments on the exchange rates of other countries suddenly found a kindred spirit in Europe, espeically in the face of German Finance Minister Wolfgang Schaeuble. In an interview with the German edition of Tagesspiegel, the politician said that the Euro is now too cheap for the German economy. Of course, he did not forget to criticize the usual accommodative policy of the European Central Bank, which, according to the Germans, brought Germany to the trade surplus. This allows interest in the comments of European traders. Meanwhile, the single currency against the Dollar held near the opening level 1.0784 with no signs of life.

Let's see what he thinks about that Draghi.

At the beginning of the European session, Germany will publish a report on factory orders which, according to forecasts, should show an increase of 4.2% year on year (+ 3.0% prior). This figure rarely provokes sharp fluctuations of the Euro, but it is a good leading indicator of the overall level of expenditure and, consequently, inflationary pressures in the economy.

At the beginning of the US trading session, do not miss the performance of the head of the European Central Bank, Mario Draghi, to the European Parliament in Brussels. He will answer questions about how appropriate policies of the Central Bank are in the current environment (Schaeuble doubts it), as well as the fact that the Central Bank will start to turn off the program of quantitative easing. Strengthening of the Euro area inflation (the January index reached its highest level in the past three years) and 15 of the positive growth quarters not only indicate that unconventional policy measures have brought the desired results, but also points to the need to normalize it. Given the unfavorable political environment, Draghi is likely to try to take the most neutral position. However, in reality, it does not matter what he says as his words will be received by the market.

Trump could not include "bearish" on the dollar yet.

In America, all the key events of this week are concentrated on Thursday and Friday, but we still have Donald Trump who was seriously interested in the topic of currency and does not promise anything positive. The new American president and his team break down old stereotypes, including that "a strong dollar is in the interest of the US economy." Trump accuses trading partners in currency manipulation, and frankly calls the Euro undervalued against the dollar. The FedS, who are the last hope of the bulls, are not in a hurry with the implementation of their plans to normalize monetary policy. In these conditions, it is difficult to rely on the development of the upward trend in the US Dollar in the short term. But the bearish trend has not yet joined. From a technical point of view, we still need to pass the "edge" in the major currency pairs. For EUR / USD, it is 1.0800.  The USD / JPY is 112.50. GBP / USD is now trading at around 1.2487 before a bearish breakout. However, the couple now lives her life and is subject to the laws of Brekzita. In other words, the medium term outlook for the dollar remains neutral until a radical change in the technical picture.

The US decision to return Iran under the sanctions has forced investors to forget about the fact that US oil companies increased drilling activity and are ready to compete for their place under the sun on the world energy market. This morning, Brent crude oil increased by 0.1% to 57.00. The West Texas Intermediate prices also rose by 0.1% to 53.89. Ceteris paribus oil in the near future will not go beyond the range in which it settled back in January, and the friction between Washington and Tehran would be offset by an increase in production volumes from shale producers.

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