The GOP Great Divide

The GOP Great Divide

Two distinct drivers monetary policy and political developments continue to mould investor sentiment. With the weekend to digest Friday’s  US political headlines. the picture is not much clearer, and that uncertainty saw opening market’s sell USDJPY as we have not likely seen the last of the vast divide among the GOP. While there was little initial panic on Friday over the AHCA getting pulled,  I suspect the markets will continue to view this failed vote as a litmus test for the ability of the Trump administration to drive the President’s agenda going forward. How quickly the Whitehouse administration can pivot to and get a convincing message across on tax reform will likely be the major focus early in the week. The market is desperately  seeking any  glimmer of  optimism that the tax reform agenda can unite Republicans

Australian Dollar

A very light week for Australian data so look for external drivers to remain dominant. I suspect we will continue to see the Aussie’s tight correlation with global equities play out and with so much uncertainty brewing on Capitol Hill investors backbones will likely get tested out of the gates this week as stock markets will likely flounder.

In addition to the wobbly capital markets, iron ore prices rolled over collapsing some 19 % last week as rebar prices slumped. Markets sideswiped by China property kerbs and hikes in China’s repo rates that are designed to kerb excessive financial speculation as the mainland leaders appear determined about reining in unbridled debt-fuelled speculators.

Japanese Yen

The dollar has been under early pressure as the JPY is benefiting from the political uncertainty unfolding on Capitol Hill. Traders are are thinking we’ve seen the near term e high water mark for USDJPY as the market views the AHCA debacle as a foreshadowing of a severe watering down of Presidents  Trump’s  power in Washington. At a minimum, the lack of unity among the GOP suggests future Trump administration policies will be far from a rubber stamp. ON Friday we saw a case of buying the rumour on the significant tax reform hope, but today we sell the fact of the great GOP divide.

Euro

Ploughing through the 1.0830 level is very constructive for the EUR.  The perception that political risks are diminishing in Europe but escalating in the US has the Euro poised to make further headway. The apparent shift in ECB to a less accommodative stance has traders thinking policy pivot as the recent inflation, and PMI data supports this notion.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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