Donald Trump remains a key factor for driving direction on financial markets, and with Treasury yields beginning to rise again this looks set to signal a new trend formation on the US dollar. We look at the impact on forex, equities and commodities as a raft of key tier one economic data is set to flood the market this week.
Markets still seem to be very much beholden to a number of key factors, however one man, Donald Trump is a key source. Still very much in the early days of the Trump Presidency (just over a week) and the politics is very much at play as Trump is trying his best to keep his campaign promises. So far, markets have maintained their positive stance on his policies. Despite the move to renegotiate the NAFTA trade deal, scrapping the US involvement in the Trans-Pacific Partnership and a pledge to “build the wall”, these protectionist moves have so far not overly concerned the markets. In fact the concern seems to have come prior to the inauguration as opposed to now. The key market driver remains the direction on Treasury yields and despite a brief questioning of the positive correlation with the dollar last week, the relationship remains strong. Also, perhaps of a surprise is that the protectionist policies are not strengthening demand for safe havens. In fact, the yen (the classic forex safe haven) is now underperforming the major currencies, whilst gold is also now beginning to trend lower and of course Treasury yields are also tracking higher once more. Of course, there is plenty of time for these trends to turn around if Trump cranks up the protectionist rhetoric, but it seems as though the dollar positive moves are regaining momentum. This will be a volatile week with PMIs, the FOMC and payrolls, so data is important, but Trump remains the key factor.