The unwinding of the Trump reflation trades lead the US dollar and the US stocks globally lower. The lack of clarity regarding Trump’s plans is weighing on investors’ confidence. The Dow Jones (-0.14%) and S&P 500 (-0.27%) stocks closed lower in New York yesterday. The US 10-year yields consolidated below the 2.40% after having tested 2.60% in December. The Trump-euphoria is paused until there is more clarity regarding where the US may be heading in terms of its fiscal and trade policies.
Nikkei (-0.55%) and Topix (-0.55%) were offered amid the US President Donald Trump signed an executive order to walk away from the Trans-Pacific Partnership (TPP) agreement. Japanese carmakers and electric integrated utilities sold off the most in Tokyo. Toyota Motor (NYSE:TM) (-1.54%) and Honda Motor (NYSE:HMC) (-1.49%) were among the leading losers.
Australia and New Zealand pledged to consolidate the TPP after the US exit.
The USD/JPY extended weakness to 102.53 in Tokyo. Negative trend and momentum indicators hint at a potential test of the critical mid-term level of 111.95 (major 38.2% retracement on Nov 8th to Dec 14th Trump rally). Breaking below this support would suggest a mid-term bearish reversal and bring the 110.00 level back on the radar. Resistance is seen at 115.00/115.45 (optionality / 50.day moving average).
Gold is still testing the $1220 offers.
The UK’s Supreme Court decision will be the major highlight of the day. The Supreme Court will decide on whether PM Theresa May will be given the power to trigger the Article 50. According to The Guardian, ‘lawmakers told her that any desire to push through a short piece of legislation could leave the government open to legal appeals’. Also, negotiations with non-EU countries could, at this stage, be considered as illegal. The pound’s value is inversely proportional to the power Theresa May will be given in the critical Brexit process. Less power Theresa has, stronger the pound will be.
The GBP/USD extended gains to a five-week high, 1.2545, ahead of today’s critical court decision. An important technical resistance is eyed at 1.2575 (minor 23.6% retracement on post-Brexit sell-off), if surpassed, could pave the way for a further rise toward 1.2774 (Dec 5th peak). On the downside, buyers are presumed at 1.2415/1.2400 (100 and 50-day moving averages respectively).
The FTSE futures (+0.30%) were marginally bid at the overnight trading session, hinting at a rebound at the London open. The FTSE is called 24 points higher at 7175p at the open.
Across the Channel, the Eurozone’s January PMI data will likely shape the morning session in euro crosses. The EUR/USD stepped in the mid-term bullish consolidation zone after clearing the critical 1.0707/10715 resistance zone. Solid data could give an extra hand to the EUR-bulls and help the EUR/USD consolidating gains above the 100-day moving average, 1.0765. The next technical level stands at 1.0819 (Fibonacci’s 50% level on post-Trump decline).
In Turkey, the central bank’s rate decision will be closely monitored. The Central Bank of Turkey (CBT) is expected to raise rates to cover the risks of holding the lira. We remind that the lira is subject to a rising social unrest regarding the constitutional referendum and political uncertainties.The risk of insufficient intervention could trigger a fresh wave of sell-off in the lira denominated markets, while a satisfactory rate action would pull the USD/TRY below 2.70. Analysts expect 50 basis points rise in the benchmark repurchase rate, 75 basis points hike in overnight lending rate and 25 basis points hike in overnight borrowing rate.