by Pinchas Cohen
After a year in which markets seem to have disregarded political risk—the UK Brexit referendum, the US presidential election and the Italian constitutional referendum—the current, ongoing White House drama has finally tipped the scales. The single biggest market mover at the moment is US President Donald Trump and his seemingly unending political scandals.
Ever since the US election, markets have been counting on the so-called Reflation Trade, Trump’s pro-growth policies of cutting taxes, rolling back regulations and an ambitious $1 trillion infrastructure investment plan. All of which have yet to appear.
In the current chaotic environment, as calls for Trump's impeachment escalate and the prospect of ongoing legal investigations become ever more likely, if he hasn't already made any progress on legislating any of the above, what are the odds that he can focus, let alone get Congress to pass anything now?
The risk-on trade has returned across all markets. In FX, the dollar continues to plunge as safe haven currencies move higher.
The yen has become the quintessential safe-haven currency, dethroning the Swiss franc.
After breaking out of the falling channel earlier, the USD/JPY is struggling to stay afloat. In today’s trade, it fell back into the channel but climbed back up.
However, it opened lower on a gap and broke through the 50dma, whose duty it was to guard the top of the channel. The next test would be the 100dma.
Notice how it stands guard at a significant price level, which has created support and resistance since February. Should it break 111.60, it would be a clear signal that momentum is toward the bottom of the channel, heading to 105.