Digesting Congestion Across FX Markets Ahead of Trump Speech

Talking Points:

– This week’s mercantile calendar is loaded; though in a near-term there is one large eventuality that is on markets’ minds, and that’s a ‘Address to a Joint Session’ from U.S. President Donald Trump during 9PM ET tonight.

– While U.S. equities continue to convene in exile fashion, all is not appearing good with a ‘reflation’ trade, as bond prices have remained elevated. Many FX markets are displaying some form of congestion, and tonight, markets will be looking for clues in President Trump’s debate to get an thought for what competence be ‘around-the-corner’.

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Tonight during 9PM we will get a ‘Address to a Joint Session’ from U.S. President, Donald Trump. Many will mostly impute to this form of debate from a U.S. President to both houses of Congress in a early partial of a year as a ‘State of a Union’ Address; though technically a President needs to be ruling for a year before to be means to call this residence ‘State of a Union’. This, instead, is referred to as an ‘Address to a Joint Session’. The expectancy is that President Trump is going to use this debate to outline his goals and priorities for his administration’s initial year. Markets will be actively looking for clues on intensity taxation cuts, along with mercantile and infrastructure spending.

Many markets are in some form of overload forward of tonight’s speech. The critical difference being U.S. equities, as they’ve usually continued to ramp-higher to serve extend their post-Election gains. Positive sum on a front of taxation cuts or infrastructure spending could assistance propel serve gains opposite a equity space.

U.S. Dollar

The U.S. Dollar, however, is extremely less-directional. The ‘big picture’ up-trend that started on a night of a choosing is still alive, despite significantly less-boisterous than what we were saying during a commencement of a year. Much of Jan was spent trending-lower after a top-side slice in Nov and December. The initial half of Feb looked as if a Dollar was prepared to come-back, with a Greenback using into a really critical insurgency turn during 101.53. This is a 50% retracement of a Jan down-trend; and if cost movement would be means to poise a postulated mangle above this level, a awaiting of additional gains would demeanour some-more attractive.

On a under-side of price action, there are supports during 100.39, 100.00 and 99.23. Given a new tinge of a Trump Administration towards a ‘Strong Dollar’ theme, it competence be formidable to suppose how a President competence bleed Dollar strength today. If President Trump talks about ‘currency manipulators’ during tonight’s speech, that will expected pierce on additional Dollar weakness, as it shows that a administration is actively looking during ‘beggar thy neighbor’ currency-weakness strategies from trade partners.

Digesting Congestion Across FX Markets Ahead of Trump Speech

Chart prepared by James Stanley

USD/JPY Wedging Off Support

USD/JPY was substantially one of a some-more appealing banking pairs in a post-Election backdrop. And even during a Jan retracement, a span reason adult a bit improved than ubiquitous USD trends, as a Greenback retraced some-more than 50% of a post-Election pierce while USD/JPY usually retraced 38.2% of that same move.

As of this morning, cost movement in USD/JPY is stability to locate some form of support during this 38.2% retracement during 111.96; and this is partial of a ‘big’ section of long-term support. For this form of setup – a some-more assertive approach to play such an thought could be to wait for tonight’s debate to see if President Trump elicits a quick-dash of USD-weakness to examine deeper into this section of support, or maybe even next it by a small bit.

Given a long-term trend that’s continued to hold, a discerning breech of support would pierce with it a probability of clearing out a lot of trailed stops on bullish positions. If buyers step in shortly after, a awaiting of a top-side annulment could demeanour a bit some-more attractive.

Digesting Congestion Across FX Markets Ahead of Trump Speech

Chart prepared by James Stanley

Cable Congestion Continues…

A startling big-mover around a U.S. Election was a British Pound. Perhaps unbelievably, a British Pound was indeed one of a few tellurian currencies that was stronger than a U.S. Dollar in a month of November.

But that strength didn’t hold, as Brexit fears re-emerged around Dec and into January, pushing a banking right behind down to support. Since afterwards we’ve seen prices come behind a bit; though sellers have remained active as a span comes-up to exam another insurgency level. We discussed this in a Technical square on GBP/USD final week, and that setup radically stays a same with prices incompetent to mangle out of this unreasonable of congestion.

Digesting Congestion Across FX Markets Ahead of Trump Speech

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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