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Apolitical Doesn’t Mean Blind to the Trump Forex Reality

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Apolitical Doesn’t Mean Blind to the Trump Forex Reality

Has everyone stopped panicking in global Forex? It appears financial institutions are showing signs of stability and perhaps even optimism, this as USD centric strength appears to actually have begun giving back the outlandish gains made on Monday when spikes higher were seen across Forex.

The nervous buying of the USD early on Monday morning erupted after President Trump’s ultimatums were not taken seriously by financial institutions late last week. Outwardly it appears that the targets consisting of Mexico and Canada going into the past weekend also wanted to make believe all would be fine. The only nation to say that it would negotiate with Trump prior to Friday was China. And now Mexico and Canada have largely fallen into line.

Speculators may want to be apolitical. They may want to believe Forex has nothing to do with politics. And some traders may not like President Trump and what he represents. However, Forex participants need to make sure they put their biases to the side and understand that economic rhetoric and actions from the U.S do effect the Forex reality.

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USD Cash Index Six Month Chart as of 5th February 2025

We have seen a vast example of this the past couple of weeks, in fact the past few months. Financial institutions have braced for and wagered on their outlooks since early November when the results of the U.S election became known. A strong USD centric element has been demonstrated as they prepared for President Trump to take executive power in the U.S again.

This past week has seen vivid Forex results and demonstrated why it is important to pay attention to international news flow, even when some may want to disregard what they are hearing. The price action in Forex particularly the USD/CAD and USD/MXN this week highlight the significance of not turning a blind eye. The highs seen on Monday followed by the reversals lower have brought support into view. Near-term and mid-term considerations will be fought over by financial institutions and retail traders may find technical opportunities to take advantage of nervous behavioral sentiment.

China which has dealt with President Trump before, appears to have handled the tariff bluster and negotiations better than Mexico and Canada. China has also been laying the groundwork to deal with the new White House administration based on having dealt with President Trump before. The USD/CNY has remained stable and China has set the table to deal with developing economic discussions in a calm manner.

It is not a question of liking or disliking Trump, it is a matter of understanding the reality and being ready to trade the circumstances that are seen across Forex. Bias when trading Forex can lead to bad decisions, it is not about betting on who you like, it is about wagering correctly on the results you believe will happen and managing your risks.

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USD/ZAR and EUR/USD as South Africa and ECB Create FX Shadows

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

USD/ZAR and EUR/USD as South Africa and ECB Create FX Shadows

Risks for day traders will abound this week in Forex. Taking advantage of trends in the days to come will rely on interpretations of behavioral sentiment, which may become rather reactionary from financial institutions if they feel existing positions are vulnerable. For the moment there is calm but day traders should not expect this to last.

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USD/ZAR Three Month Chart on the 3rd of June 2024

The results from the South Africa election have delivered the need for a government coalition. The USD/ZAR will certainly move according to degrees of nervousness being generated in South Africa. While the African National Congress has publicly called for unity and openness to achieve a working government, there are legitimate fears the ANC may consider a left wing coalition known as the Doomsday approach, which could include political parties that are not seen as being pro-business or inclusive for the entire population. Financial institutions in South Africa and abroad will have their trust of the ANC tested in the days ahead.

South Africa political concerns may cause the USD/ZAR to step out of line and not correlate to the broad Forex market. The ANC has two working weeks to reach a coalition deal. The ANC has never been in such a weak position before, and if the ANC makes a political deal which is interpreted as being against free enterprise it will not be welcomed by many businesses. Will the ANC be able to admit a new path can be followed in South Africa that creates a space for more transparency regarding fiscal policy and oversight, or will the ANC become stubborn and make a deal with a political party that moves the nation backwards economically and causes more strain via geopolitics?

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EUR/USD Three Month Chart on the 3rd of June 2024

From Europe, the ECB will step into the spotlight this coming Thursday. Following last week’s lower than expected Consumer Price Index data from Germany, the ECB is widely anticipated to cut its Main Refinancing Rate by 0.25%. Day traders need to be aware of this, because on Thursday if and when the ECB does cut the interest rate, the reaction in the EUR/USD may not move the market as much as small retail speculators anticipate.

Instead the volatile reaction could come from the inspection and understanding of the published Monetary Policy Statement, and the Press Conference which will follow half an hour later. The EUR/USD it should be noted jumped higher last Wednesday on the weaker than expected inflation report from Germany, which may mean some of the EUR/USD bullishness has already been bought into the currency pair.

The thought that the ECB has seemingly stood in the shadow of the Fed for the past year and largely reacted only after the U.S central bank is important. If the ECB actually goes out on a limb and cuts its interest rate this week, and says it is considering another later this summer it will cause a reaction. The differentiation between the Main Refinancing Rate from the ECB and the Fed’s Federal Fund Rate will cause momentary headaches too.

However, this might ignite thinking within financial institutions that the Fed has given the ECB a quiet ‘green light’ and assured the ECB that the Federal Reserve will become dovish over the mid-term. However, the Fed is not expected to cut the Federal Funds Rate next week. What should happen is that the Fed delivers a December 2023 repeat performance on the 12th of June, in which it expresses a rather dovish perspective – but this time delivers, but there are no guarantees.

The U.S jobs numbers this Friday will play into the EUR/USD sentiment too and all other Forex pairs. Importantly, traders do not want to see a retraction from the Fed again in the coming months and cautious talk about inflation. While higher prices may be the reality for the moment, financial institutions appear to be hoping on proactive actions from the ECB and Fed combined. If dovish rhetoric isn’t seen Forex choppiness will become intense again.

Political rhetoric and its influence on Forex will not only come from South Africa and Europe, but India as its election results are finalized tomorrow and Mexico after the outcome of its vote held this past weekend. The results in India and Mexico have produced the anticipated outcomes, so the USD/INR and USD/MXN should expect to become calmer in the days ahead.

After the anticipated U.S Fed FOMC meeting rhetoric on the 12th of June, and the Bank of Japan’s policy tidbits on the 14th perhaps things will become relatively tranquil. However, financial institutions will be busy over the next ten business days as they try to make sure they have balanced Forex positions, which take into account their commercial transactions and cash forward outlooks for clients which could add to the potential for volatility.