MARKETS: Mexican Peso fights back, GBP continues to rally

 
There is no doubt that Donald Trump has certainly been busy since the inauguration and the major news from Wednesday’s National Security meeting being that the U.S. President has signed an executive order for an “impassable physical barrier” between Mexico and the United States, which Mexico will need to pay for, in line with his campaign promises.
Thursday represents day four of his Presidential reign and as you would expect all the global headlines are “Trump, Trump, Trump”. He does however appear to be going full speed towards fulfilling his campaign pledges; his first three days in office have seen the withdrawal from the TPP deal, clearing the way for controversial oil pipelines and most famously pushing ahead with the plan to build a border wall with Mexico.

Mexican Peso fights back following wall order

While the news about President Trump signing an executive order to push ahead with a wall between the US and Mexico is dominating the headlines, the Peso is not feeling the brunt of it and is continuing to strengthen against the Dollar. As widely expected, it has not taken long for the President of Mexico to send out a stark message that his nation will not be paying for the wall and I guess we will all wait to see how team Trump responds to this one. If recent history and future projections are anything to go by, we can expect a tweet from President Trump in a few hours!
Joking aside, investors should pay attention to how President Trump handles diplomacy regardless of the “America first, and always” rhetoric. Although the focus is currently on how the relationship between Mexico and the U.S. moves, it is a matter of time before the headlines are between China/US, North Korea/US and maybe even Russia/US. Some of those mentioned might have far more severe consequences than market movements, and investors must remain mindful towards these risks.

Turkish Lira resumes weakness

The weakness in the Turkish Lira is resuming with the currency appearing on track to move back towards its historic losses against the USD. Name all of the problems that can weaken a currency and Turkey is experiencing them all, whether this is social, economic or political and it is not difficult to see why the Lira is being destroyed. I still stand by my opinion that the central bank of Turkey likely made the right decision by leaving monetary policy unchanged during their interest rate decision a few weeks ago; the Lira is in freefall and there is no stopping it. Playing hot potato with monetary policy can also backfire and hurt investor confidence further, meaning that perhaps the central bank is keeping fingers crossed that the currency stabilises before deciding what to do.

GBPUSD continues to rally

The GBPUSD has extended its gains and is trying to find 1.27 after reaching 1.2672 earlier in trading on Thursday. The rebound in the Pound is both technical and fundamental. Technically, the GBPUSD managed to conclude trading above the psychological 1.2350 pivot point last week and this has enticed technical traders. Fundamentally speaking, it is looking day by day like we are avoiding the risks of a “hard Brexit” with Article 50 expected to be invoked in two months’ time and this is supporting investor confidence.
Since our Q1 outlook, we see major resistance around the post-referendum lows at 1.2775 and any buyers from here must be mindful that there is a severe risk of investors taking profit if the GBPUSD manages to find 1.27.

Could Euro fail?

All headlines are on Trump and Mexico, but the man tipped to become the ambassador to the European Union has been quoted as saying that the Euro currency could collapse in the next 18 months. The Eurodollar traded lower during trading on Thursday, but this is most likely technically driven after approaching the 1.08 zone. Bearing in mind how viciously the Euro can appreciate on a round of investors unwinding on USD positions, the idea to “short the Euro” as the possible ambassador has suggested could be questioned later on if President Trump himself once again makes comments on USD strength.

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