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From the Floor: Trump and the 'bully pulpit' — #SaxoStrats

   • Donald Trump inauguration as US president to dominate agenda entirely Friday
   • Trump may use the 'bully pulpit' to set off currency wars — Hardy
   • Two-sided dollar outcomes indicates we're far from knowing his real intentions yet
   • Dollar Index facing key test of support at 100 — Hardy
   • Monday expiry EURUSD options spike to 9% — Norup
   • EURUSD two-month expiries rise as odds on next rate hike shorten — Norup
   • Equities still in uptrend despite the Trump uncertainties — Garnry
   • Dovish ECB could lay ground for hawkish reversion in 2017 — Garnry
   • German, US yields move in opposite directions ahead of Trump speech — Boye

By Martin O'Rourke

Bully for them

We had the European Central Bank meeting Thursday, a seriously important GDP number out of China overnight, and a reversal in the Netflix post-Q4 results during the US session, but nothing, absolutely nothing, is going to rain on Donald Trump's parade today.

The headline-seeker will be able to bask in all the affirmation he could possibly want when he picks up his morning read (social media, no doubt) and finally ascends to the global stage this evening. It signals the end of the phoney war and the start of what could prove to be the most astonishing US presidential administration in history. 

"Everything is overshadowed by Trump today," says John J Hardy, Saxo Bank's head of forex strategy, adding that one of the main focuses will be on what happens next to the dollar.

"There are two sides to the protectionism argument," says Hardy. "It could be seen as extremely positive for dollar on the back of tariffs and a tax deal which would help eliminate the trade deficit or there is the other side that Trump is interested in talking dollar down as part of a plan to reshore manufacturing and for that, he will need to have currency wars."

"Does he intend to use the bully pulpit of the US office to run around bashing other countries?," says Hardy. "That type of war could go on for months or even years."

The dollar is clearly feeling the heat in any case as a diffident 2017 dilutes the memory of the storming rally that had gathered pace under Trump's $1 trillion stimulus pledge.

"The dollar needs to pick up some support soon," says Hardy. "On the Dollar Index, it needs to maintain at around the 100 level if it is to affirm its secular uptrend."

Dollar Index looking at key challenge at 100.0 area

Source: Bloomberg

EURUSD was at 1.0674 at 0755 GMT, up marginally on the same time Thursday.

Activity has also spiked around EURUSD options with Monday expiries covering Trump's coronation at 9% volatilities, reports Jeppe Norup from the FX Options desk in Copenhagen.

"So far in 2017, vols have been sliding but there were some big moves Thursday on the back of the ECB event," says Norup. "We're also seeing some big demand around the two-month expiry which takes in the next Federal Open Market Committee meeting in March when it looks likely that the Fed will raise rates again."

There was some strong volatility around ECB and we expect even more through the weekend," he says. "EURUSD is trading at a 70 pips straddle versus 60 pips for the ECB."

EURUSD one-month volatility has slowed in 2017 but it looks like it's ready to accelerate
Source: SaxoTraderGO

Equities holding course

Equities may have had some of the fire taking out of the post-Trump election rally in the last week or so, but the bullish case remains intact for the major indices and should remain so for much of 2017, says Saxo Bank's head of equities strategy Peter Garnry.

"There is still support and we are still in an uptrend," says the equities chief. "While we are trading at some elevated levels, 2017 looks like it will be a better year than 2016."

Garnry can see potential bumps ahead for Europe, however, after an almost "too-good-to-be-true" dove-like performance from the European Central Bank Thursday, despite European data beginning to look more positive. 

"We could see a surprise move later in the year if the ECB turns more hawkish and that could be particularly good if you are exposed to financials," says Garnry.

Netflix shares meanwhile reversed overnight as investors took another look at the stellar Q4 result and give a bit of thumbs down to the content disrupter. Netflix — the home rather appropriately of White-House based political thriller House of Cards — has disappointed investors on the profit side spooking the share price in the process.

"Investors clearly want to see Netflix' profitability improving but it seems that the whole business is improving," says Garnry, indicating not too much should be read into this.

And, as we go into Trump's big day, European and US bonds are once again pulling in different directions, reports Michael Boye from the fixed income desk in Copenhagen, with German 10-year yields once again below 0.40% and US 10-year Treasuries back to 2.46%.

And finally...

China's GDP for Q4 came in at 6.8% which, while ahead of the consensus 6.7% expectation, was its lowest since 1990.

Shiyun Su, reporting from Saxo Bank's Asia hub in Singapore, says both the Shenzhen and Shanghai indices were up in the aftermath as China's growth comfortably fell within the 6.5-7% growth range.

There was also quite a fillip for the ChiNext Index to the tune of a 2.4% rise after the authorities signalled a loosening of regulations which, says Su, "could well benefit small cap companies."

You see, it's not all about you Donald Trump!

 Or perhaps it is all about you Mr.Trump. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank
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The lady from APAC team has very kind voice ♥♥
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The Trump inauguration time window is 1130-1230 EST in USA, which is 1630-1730 GMT and 1730-1830 CET


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