Donald Trump and major economic data will be the key drivers of financial markets in the coming week. The content of Trump’s first main policy speech could be key for direction on Treasuries and the US dollar, whilst the Federal Reserve’s preferred inflation measure and key forward looking PMIs will also play a role. We look at the impact that this will have on major forex markets, equities and commodities.
The dollar could be set for corrective pressure again as traders question the potential for a March Fed rate hike. As discussed in the Macro Commentary, if the recent corrective move on Treasury yields continues, to breach the support of multi-month ranges, it could drive a dollar correction. Two factors that could prevent this, are the continued improvement in US economic data and the announcement of a comprehensive fiscal expansion by President Trump. With the amount of key tier one economic data this week, volatility on forex majors will be elevated, however the PMIs and Core PCE will be a big focus for traders. Strong US data could provide near term support for the dollar to hold up the corrective pressure. The dollar is also fortunate that idiosyncratic factors are also playing in its favour, with Brexit and now a possible second Scottish Referendum a drag on sterling. The euro direction is also increasingly tied to the prospects of French presidential election candidates, and watching the French/German 10 year yield spread is a key indicator. The spread expanding is a drag on the euro which now trends lower against the dollar, yen and even sterling. However, Dollar/Yen is below the near term support at 112.50 and now 111.60 is a key sentiment to watch, whilst traders will be looking for a move below the long term pivot at 111.30 on Dollar/Yen which would be a key breakdown.