It’s been another record breaking week for US stock markets, as well as the FTSE250, both of which have managed to post record highs on consecutive days throughout the week.

Yesterday saw that winning run come to an end, but in the case of the US, the losses seen were fairly minor as stocks closed well off their lows of the day, as investors continued to largely ignore the pantomime taking place in Washington DC.

Despite yesterday’s pause investors appear to be confident in the ability of the US President to deliver on his promise to deliver something phenomenal in the next couple of weeks; however the big question is will he be able to deliver what the market is pricing in, especially with all the current distractions surrounding him?

Earlier this week the S&P500 saw its total market capitalisation cross the $20trn level for the first time ever, and while it would be tempting to assume that markets are gung-ho about where markets are headed, the rise in the gold price appears to suggest that there is some hedging of bets going on.

Ultimately the question investors ought to be asking, is how much is the “Trump Trade” actually worth, allowing for the improvements being seen in the most recent economic data. Basically how much is already priced in relative to what can be delivered, and on that point there is simply no accurate way to know.

What was also rather surprising yesterday was the heavy slide in the US dollar despite the increased probability of a Fed rate move in March. Improving economic data, and some fairly hawkish commentary from Fed officials should be sending the US dollar higher, yet we had some significant haven buying going in with gold, US treasuries, the Swiss franc and the Japanese yen all rebounding strongly.

Why this US dollar weakness is happening now is difficult to pinpoint, however Fed vice Chair Stanley Fischer’s comments yesterday that the Fed was moving closer to the central bank’s target rate for inflation, while in line with Janet Yellen’s earlier in the week they still don’t chime with the prospect of a move in March, and that more than anything is probably why we’ve slid back.

When December’s UK retail sales numbers came out there was some puzzlement as to why they were so poor given that in the week leading up to the release a stream of retailers had put out some fairly positive trading updates, for the pre and post-Christmas period.

There was some exceptions, clothing retailer Next being the most notable with yet another profits warning, so it was a surprise when we saw a 1.9% decline, a number which almost wiped out the entire quarter’s positive trading.

Since then we’ve seen inflationary pressures increase in the latest January inflation data, and the most recent wages data up to December has shown some signs of softening, even though the labour market continues to hold up well.

This might suggest that we could well see a weak January UK retail sales number when the latest numbers are released later this morning, particularly since last week’s British Retail consortium January sales numbers showed a decline of 0.6%. Even so it has to be said that it’s not always a good leading indicator given that we saw is post a 1% gain for December, the complete opposite of the ONS numbers.

Expectations for today’s numbers are for a rise of 0.9%, which on the face of it may be optimistic, while on annualised basis a decline to 3.4% is expected.  

EURUSD – appears to have found support at the 1.0520 area, and has traded back higher and looks set to push higher through the 1.0720 resistance area and retest the highs above the 1.0800 area.

GBPUSD – the pound continues to surprise with its resilience having rebuffed another dip below 1.2400 this week. The 1.2400 level remains a key support, with a close below targeting 1.2250. A move above the high last week of 1.2580 retargets the 1.2700 area.

EURGBP – currently trending back towards the 0.8570/80 area, with a break higher needed to stabilise. Support remains at the 200 day MA at 0.8450. A break of the 200 day MA retargets the 0.8300 area.

USDJPY – having fallen short just below the 115.00 level we could well drift back towards the range lows at 111.60 in the short term.

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