Anxiety over what Trump may brings will outweigh everything

The euro put in an engulfing bear candlestick yesterday, suggesting a retreat today, but so far all we have is an itsy-bitsy inside day. Traders have an uncanny knack of keeping old prices in their heads and we can fairly assume they want to see the year-end close at a level that flatters their own performance. So far the euro low is only just below 1.0400, so our hope for a test of the previous lowest low may go unfulfilled. As of 7:30 am ET, it looks too far away—1.0339 from Nov 22. Yesterday’s low is more likely.

For fun, see the chart insert. The Fibonacci retracement on the 60-minute chart shows a perfect 62% retracement from yesterday’s’ low at 1.0369. Fibonacci is superstitious hooey but works so often because traders expect it to work and make it happen, even if the 60-minute timeframe is not what was intended in the first place (as in Elliot Wave).

Now check out the weekly chart on the next page. We have two patterns to note. First is the double top. The price has fallen below the intermediate low, implying it has further to go. How much further? Well, the 62% retracement there lies at 1.0196. Take with s grain of salt.

Outlook

The market is already thin and languid. Nearly everyone will go home by noon. After tomorrow’s holiday and hangover, then what? We suspect that anxiety over what Trump may brings will outweigh everything else, even any beginning signs of a slowdown.

Focus will inevitably turn to all the dreadful possible changes Trump will make, or says he may make. Yesterday there was hysteria over privatizing the US Post Office. See below.

It may be overly US-centered to say so, but the fate of the dollar depends on Trumpian policies and how inflationary they turn out to be—or are assumed to be. Actual inflation is probably far down the road given the lag, although lag will likely be cut back this time now that we know so much about inflation these days. Then it’s on to what the Fed does about it. 

The WSJ writes the future of the dollar is shiny-bright. “The currency is a key beneficiary of U.S. exceptionalism. The American economy is growing faster than most, with Europe stuck in a manufacturing rut and China struggling to contain the fallout from its property meltdown.

“The Federal Reserve’s newfound hesitance to cut interest rates adds to the appeal of holding dollars, while the artificial-intelligence euphoria that has lifted U.S. stocks continues to draw in foreign investors. Many investors expect Donald Trump’s return to the White House to supercharge the U.S.’s appeal.”

Well, that’s without considering the authentic drawbacks, like the deficit. And at what point is it overbought? “The dollar’s decadelong rise has confounded many professional forecasters, who point to a large overvaluation versus historical levels and ever-wider U.S. budget and trade deficits. Bank of America estimates the dollar is more than 20% overvalued, based on an internal model that incorporates factors like trade and interest-rate differentials.” See the chart. Adjusted for inflation, the dollar is out of line.