Financial market research and analysis

The US indices charged northwards to close at record highs once again overnight. The Dow Jones closed up 0.5% at 26.392, the S&P gained 0.05% at 2839. However, the chief focus was once again on the dollar. Wall Street endured choppy trading as investors reacted to wild changes in the currency markets, as President Trump brought the recent dollar selloff to an end.

President Trump wasted no time wading into the currency words controversy, by saying that the dollar would get stronger and stronger and that he ultimately wanted the dollar to be strong. He added that he thought that US Treasury Secretary Steve Mnuchin’s comments has been widely misinterpreted.

His dollar boosting comments come just one day after Mnuchin successfully talked the dollar into its biggest one day sell off in 10 months. The remarks from Trump were particularly unusual firstly, because US Presidents rarely talk about the dollar and secondly because only last year Trump, just prior to his inauguration, remarked that the dollar was too strong. There is definitely some confusion coming from the Trump administration as to what its preference for the dollar actually is.

Investors were happy to take Trump’s word in the previous session and in response the dollar quickly picked itself up off fresh 3 year lows. The dollar had dipped to a low of 88.45 versus a basket of currencies, but moved into the close at 89.46, an intraday gain of 1.1%, its first positive session in 5.

Dollar gains ease

A wild ride in the dollar and a thinly veiled swipe at Mnuchin by ECB President Draghi, saw the EUR/USD surge to a high of $1.2536 before dropping to a low of $1.2362. Meanwhile GBP/USD dived 1.8% from $1.4345 to $1.4081 at its nadir. Both pairs reined in their losses during the Asian session and have started Friday trading in positive territory

The dollar is once again on the back foot this morning as investors look towards Trump’s speech at Davos, concerns over protectionism are keeping dollar traders cautious.

European open

The strength of the European currencies in the previous session saw bourses across Europe close heavily lower. The strong reversal in these currencies later in the US session means that Europe is pointing to a stronger open.

Other than Trump’s keynote speech in Davos, other key focuses for today’s session will be UK GDP, and US GDP.

UK GDP

Expectations are that the British economy retained a steady pace of growth in the fourth quarter, growing 0.4%. However, the annualised figure is forecast to drop to 1.4% from 1.7%. Generally speaking UK data has been on an encouraging trajectory. Furthermore, GBP/USD has a 2.1% gain so far this week, reaching a high of $1.4343. President Trump’s comments in the previous session have seen the pair pull back to $1.4150. Should today’s GDP figure fail to live up to expectations, GBP/USD is likely to experience a bout of profit taking into the weekend. Despite the potential for a selloff, $1.40 has established itself as a firm support. We expect this level to hold in the near term.

US GDP

The US GDP is the most important US release on the economic calendar this week. Given the market’s laser sharp focus on the dollar in recent sessions, we could find the GDP having a significant impact on the currency. There is potential for a slightly weaker reading after retail sales and trade figures showed a slow down towards the end of the year.

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