Political Uncertainty Continues to Weigh on Sentiment

US equity markets are poised to open slightly higher on Tuesday but traders are maintaining some caution given the increasing political risk environment in both the US and Europe.

Investors got very excited about the potential for tax cuts, fiscal stimulus and deregulation in the weeks following Donald Trump’s election victory but the focus appears to have shifted recently, with the less market friendly immigration, trade and fx policies coming to the fore. Trump has been very active in the early days of his tenure but with traders not knowing what policies he’ll target next and with details on tax cuts and stimulus lacking, there is some understandable unease at the moment.

USD/JPY – Dollar Rebounds, Pushes Above 112 Yen

This isn’t being helped by the growing political uncertainty in Europe, where some massive elections will take place this year. The increasing popularity of Marine Le Pen ahead of the French elections, coupled with growing disapproval towards the mainstream parties and general anti-establishment feeling in the US and Europe over the last 12 months could seriously add to the political instability in Europe. This is adding to the feeling of uncertainty and may continue to do so as the elections approach.

The more cautious environment has favoured Gold, a traditional safe haven play, aided by Trump’s attempts to drive down the value of the dollar. Gold has come off its highs today, down around one third of 1% on the session, but continues to look a little bullish in the short term. It could face resistance around $1,250-1,255 which will be the next major test to the upside but if the dollar weakness continues – although it is showing signs of stabilising – and caution remains, this could easily be broken.

Gold Daily

OANDA fxTrade Advanced Charting Platform

It’s going to be another quiet session on the economic data front, with US JOLTS job openings and trade balance the only notable releases, while 28 S&P 500 companies are also due to report fourth quarter earnings throughout the day.

Political Worries Supports Dollar, Backs Up Euro Periphery Yields

For a look at all of today’s economic events, check out our economic calendar.

Economic Calendar

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.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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