The greenback was under pressure during early trading on Monday after U.S President Donald Trump adopted a protectionist stance in his inauguration speech which sparked concerns of rising trade protectionism. Sellers swiftly exploited the lack of clarity in the speech regarding the proposed fiscal stimulus measures to attack the dollar Index lower with prices edging towards 100.00 as of writing.
With the new President of the United States declaring on Sunday that he plans to hold talks with leaders of Canada and Mexico to begin renegotiating the North American Free Trade agreement, the rising tension could create a wave of risk aversion ultimately punishing global stocks.
The growing threat of Donald Trump’s proposed fiscal stimulus failing to keep up with market expectations may ensure dollar weakness becomes a recurrent theme in the short term. While further dollar selloffs may be expected as markets scale back on fiscal stimulus speculations, the prospects of higher US interest rates this year should limit losses in the medium to longer term. From a technical standpoint, the dollar index is turning bearish on the daily charts with a breakdown below 100.00 encouraging a further decline lower towards 98.50.
Stock markets gripped by risk aversion
Global stocks traded lower on Monday as the Trump fueled uncertainties, rising political risks, and overall market jitters dented investors' risk appetite. Asian shares failed to maintain gains while the risk-off sentiment sent European markets into the red territory. With participants adopting a defensive approach amid the market caution, Wall Street may be poised to trade lower on Monday. Donald Trump’s inauguration speech has left the financial markets on edge with the air of uncertainty encouraging investors to rush to safe-haven investments.
Sterling eyes 1.2500
The sterling glided to a fresh five-week high above 1.2470 during Monday’s trading session as expectations heightened over the Supreme Court ruling that the government needs parliamentary approval to trigger the Brexit negotiations. A depreciating dollar from the persistent Trump uncertainties has also played a key part in the GBP/USD’s sharp rebound with further upside expected in the short term if the dollar remains subdued.
Although there is a possibility of the GBP/USD edging higher towards 1.2500, further gains may be limited when taking into account how uncertainty remains a key theme when dealing with sterling in the longer term. The currency could find itself under renewed selling pressure in the medium term if anxiety mounts ahead of the article 50 invoke in March.
From a technical standpoint, the tough resistance around 1.2500 could provide a foundation for bearish investors to install renewed rounds of selling with targets stretching back lower towards 1.2350.
Commodity spotlight – Gold
The terrible cocktail of political risks, Trump fueled uncertainties and a vulnerable Dollar has elevated gold prices to a fresh two-month high at $1219 during Monday’s trading session. Investors have adopted a cautious approach amid the uncertainty with safe-haven investments such as gold back in fashion. With anxiety and investor jitters likely to intensify in the coming weeks amid the Brexit woes, events in Europe and actions of Donald Trump, gold could be poised to trade higher.
Although the expectations of higher US rates this year has the ability to cap extreme gains on gold in the medium to longer term, the current instability and unease across the financial markets may ensure prices remain buoyed in the short term. Technical traders could exploit the breakout above $1210 on gold to propel prices towards the next relevant resistance level at $1230.
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