Since Donald Trump won the hotly contested 2016 Presidential election, the USD has been unstoppable, surging to 13-year highs against the EUR on hopes that the president-elect will spur US growth through a program of infrastructure spending and repatriation of US company’s offshore profits.
These hopes that Trump will “Make America Great Again” and bring back lost manufacturing jobs has also pushed the Dow to within a whisker of 20K.
At the same time the Fed have hiked rates and turned more hawkish, now signaling 3 rate hikes in 2017 as opposed to the 2 they had previously communicated.
Now with all of these USD favorable factors priced in, traders who have ridden this wave of USD strength all the way from 102 may be asking themselves “Is all the good news priced in?”
Well this may be the case.
When we look at the USDJPY weekly chart we can see that at the end of last week the pair ran into resistance between 118.00-118.50, which was previously support that lasted for roughly 46 weeks (Excluding the spike lower in August 2015 which was caused by fears of a Chinese hard landing.)
So the technical picture suggests that USD might be about to take a breather. A retracement to 116.00 and retest of that level may be on the cards in the coming weeks.
But there are also a couple of other factors that might make you question if the market has gone a tad too far:
- Following the recent rise in global rates and inflation, the BoJ may be considering moving their target for the 10 year JGB yield higher. (potentially JPY positive).
- Trump’s expected USD 1trl fiscal stimulus may not be as forthcoming as previously thought, with the appointment of a fiscal conservative as budget director.
- Yellen is a through and through dove and has signaled that she is willing to the economy “run hot” so we may not see those 3 rate hikes next year (we didn’t in 2016).
It should be interesting to see what happens with the USD.