EUR/USD is battling the 1.0650 level but this battle is not over. The pair bounced off low support yesterday when positive US data came out and continued moving higher, trading in nice ranges.
The US dollar is showing weakness across the board. Janet Yellen’s upbeat comments and the strong retail sales and inflation figures were helpful for the dollar, but there is another factor: The Donald.
The dollar rally of late 2016, related to hopes for fiscal stimulus and no real trade issues, has been replaced by range-trading in early 2017. As we approach one month to Trump’s turbulent presidency, there are growing worries.
For those focusing on politics, the debacle around Michael Flynn and the failed Muslim Ban drew attention. For markets, Trump has managed to anger Mexico and also talk about currency devaluation by China and Japan while not providing any stimulus program.
In theory, presidents are judged after 100 days in office, but markets are much fast. The Donald Disillusion means that we will see less growth, less inflation, fewer rate hikes and therefore a weaker US dollar.
On the other side of the Atlantic, the euro has been hit by its own political worries, namely leading French candidate Marine Le Pen’s talk about a referendum on leaving the euro. However, these seem to have subsided in the meantime. It is always important to remember that France has a two-round system and the candidate facing her is likely to win in a landslide.
The meeting minutes from the European Central Bank has not helped nor harmed the move. It is mostly a repeat of the messages sent by Draghi. The ECB was not unanimous in its decision to continue with very substantial stimulus, but this is no surprise.
Here is how the move looks on the 30-minute chart.
More: EUR/USD: Targets For A Decline In H1 Before A Rally In H2 – BofA Merrill
