Political Pandemonium

Political Pandemonium

While the markets aggressive risk-off reverberation may well be exaggerated, the fact is dealers never actually believed the Trump impeachment chatter until yesterday when the Comey notes came to light. There is a very high level of uncertainty oozing from the markets but one thing that is crystal clear, investors now believe that at a minimum the rising US political entropy will jeopardise the White House policy agenda, and at the extreme, a Trump impeachment will lead to a flat out market collapse.

What initially started as a risk off narrative turned into a  full blow US dollar  -off a move that has been intense and unforgiving. But despite the magnitude of the dollar sell-off overnight, we may only be scratching the surface if this storyline has legs.

US political risk will continue to drive sentiment near term which will continue to pressure S&P futures and regional bourses while the traditional havens, Yen, US Treasuries and Gold will provide an umbrella for investors as dark and ominous political thunderheads gather.

Besides the political headline risk, the market is becoming less sure about a June Fed interest rate hike as the pandemonium in Washington and sagging equity markets will not go unnoticed by Dr Yellen and company. It’s a toxic brew for dollar bulls who are getting steamrolled from every possible angle.

 

 

US Dollar


Completely engulfed in the Trump Comey story but the key for extending the short USD  trade will be how loyal Republican legislators remain to Trump, or will they look to abandon what appears to be a  rudderless ship.


Australian dollar


Another solid employment number this morning, and should be supportive but with external US political factors weighing on risk sentiment, it’s unlikely dealers will muster up the courage to make any serious attempt near .7475 level.


Euro

Asset rotation into Europe should continue to provide support while US political decay plays into the Euro as a haven poxy. Any shift in ECB guidance will be a bonus for the EURO bulls


Asia FX


Very deep rooted risk off sentiment with the only bright spot a bounce on oil on the back of inventory decline.Far too much uncertainty in the short term  market which will see dealers either keeping inventory light or on the sidelines  awaiting the next catalyst

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

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, 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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