Market Update – January 31, 2017

Market Update – January 31, 2017

After a boring previous week, price action started to pick up as the U.S dollar is traded heavily. There are two factors that move these markets: the overall U.S. policy under the new administration, and the heavy economic calendar that lies ahead for the rest of the week.

 

The Trump’s administration announced over the weekend a travel ban for people from specific countries and the promises during the election campaign are starting to be seen. However, market participants and the world, in general, seems to have been taken by surprise by these moves, if we are to judge by the way the equity indices traded at the start of the week.

 

I would say we did not see anything yet, as the economic plans in the United States have not been unveiled yet. All this controversy about borders, protectionism, etc., only adds to uncertainty. As a consequence, both bulls and bears are confused and no one takes a tough stance on anything.

 

In the meantime, since Trump’s election, the U.S. dollar has been sold all over the dashboard. Some currency pairs that have a risk component associated with the way they move, traveled faster and further.

 

Such is the case of the USDCHF that dipped below parity after flirting all last week with that level. The move lower was so aggressive that even the EURCHF (a pair that was ranging for most of January) moved lower.

 

At the time this article is written we already know that inflation in the Eurozone ticked up and upside surprises were the norm. Spanish inflation, for example, came in at 3%, topping the wildest estimations.

 

It is no wonder the Euro pairs moved higher, with the EURUSD in the driver seat. 1.0770 area was the highest today and there are no bears in sight. However, we should keep in mind that the two most important events are still ahead of us, at least when it comes to this trading week: the FOMC (Federal Open Market Commission) statement and the NFP (Non-Farm Payrolls) in the United States.

 

There is no scheduled press conference after this Wednesday’s interest rate decision and this means that the Fed will most likely stay on hold. The market is giving little or no chances to a rate hike at this meeting and the focus is shifting to the statement’s tone: will we have a hawkish or a dovish hold?

 

NFP next Friday will further offer us clues regarding the strength of the U.S. economy and will most likely influence the way the U.S. dollar will move in the upcoming month. Considering that in January it was sold aggressively, I wouldn’t rule out a mighty comeback.

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