Trump Tomahawk tactic fails to hold market’s attention
FX Trade Strategist / http://www.Loonieviews.net
· US ends string of strong nonfarm payrolls reports
· Trump flexes military muscle in Syria
· Short week and light US economic calendar ahead
With the attack on Syria, Trump has moved his presidency towards the mainstream of Republican foreign policy. Photo: Shutterstock
By Michael O’Neill
If president Donald Trump updates his 1987 book "The Art of the Deal", he should include a chapter called "Tomahawk Tact: a Republican president’s guide to building popularity at home" .
After all, it worked for Reagan, Clinton, Bush, and… Bush again (Obama just drew lines in the sand). Americans enjoy beating the war drum and waving the flag when the right opportunity arises, and "right" usually means "distant, weak, and unfortunately aligned".
Last night, Syria fit the bill.
The US missile strike on Syria’s Al-Shayrat Airfield may have signalled a shift in diplomatic discussions surrounding many of the world’s hotspots.
On Thursday, Philippines president Rodrigo Duterte put troops on unoccupied but disputed islands in the South China Sea. That was the same day that Reuters reported a Chinese fighter plane parked on another contested rock in the same contested sea. China is flexing its muscles around Malaysia as well, with Chinese coast guard ships floating around reefs claimed by Kuala Lumpur.
Trump has made noises about “going it alone” to rein in North Korea and its constant missile testing threats. North Korea is supposed to be China’s responsibility, of course, which could put the US at odds with the Middle Kingdom.
The US attack on the Syrian air base has also angered Syria’s ally, Russia. America is already annoyed at Russia for its rumoured interference in the US election, its invasion of Crimea, and its support of rebels in Ukraine.
Back in the day, a US missile attack on any nation would have led to a prolonged period of risk aversion. Nowadays, it can’t hold anyone’s attention for more than a couple of hours.
Are markets being overly complacent or overly ignorant to the risks?
Time will tell.
The US has never had much success in terms of its Middle Eastern adventures, but Syria’s Russian alliance makes this one the most sensitive yet. Photo: Shutterstock
The week ahead
It will be a short week for many regions due to the Easter holidays beginning on Friday (with the US being the notable exception). There are not any top-tier US data scheduled but there is no shortage of important economic releases from the other G10 nations.
Monday will be slow with only fallout from the previous Friday’s US employment report available to guide trading. And of course, any noteworthy developments from the Trump/Jinping summit.
Tuesday, the European session may have the most excitement due to UK CPI and PPI releases and Eurozone ZEW surveys.
Wednesday could be a busy day depending upon the reaction to China PPI and CPI reports, as well as UK unemployment data. The Bank of Canada monetary policy statement, press conference and monetary policy report will be the focus for USDCAD traders.
Thursday mornings will be busy around the globe while early departures for Easter holidays will ensure quiet afternoons. The Australia employment report will kick off a busy Asia session and it will be followed by Chinese trade data. There are a lot of US data on the slate as well, but all of them are second tier.
The week that was
The first week of the second quarter was noisy, complete with sabre-rattling, a Federal Open Market Committee member falling on his pension, nonfarm payrolls data, and FOMC minutes. Nevertheless, although the US dollar did not break out of its comfort zone, it managed to make gains against all the G10 currencies except for yen.
Monday had a lot of everything. Japan’s Tankan survey was mixed to soft but not enough to bother FX traders. USDJPY drifted up from 111.14 to 111.57 when Europe opened and then erased all those gains by mid-morning in New York. AUDUSD rallied at the open and found this week’s peak of 0.7614 early. Weaker-than-expected Retail Sales kicked off a slide that continued for the rest of the week. NZDUSD followed Aussie lower.
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The Eurozone saw a slew of Markit Manufacturing PMI reports, most of which were as expected or better. None of them had a meaningful impact on EURUSD which bounced inside a 1.0640-80 range the entire day. However, the weaker-than-expected UK PMI report did bother sterling traders. GBPUSD dropped from 1.2555 and hit 1.2462 by the end of the New York session. New York action was subdued. Traders were distracted by the terrorist attack in Russia, and another political failure for the Trump administration.
Tuesday, there was modest shift into risk aversion trades due to the attack in Russia, Trump’s comments toward North Korea, and the China/US summit at the end of the week.
AUDUSD failed to capitalise on a positive trade report after the central bank delivered a somewhat dovish policy statement. EURUSD stayed rangebound while sterling had another inexplicable move in Asia. In the US, strong US economic reports and a rise in oil prices chased away risk aversion sentiment. Richmond Fed President Lacker resigned from the FOMC for blabbing FOMC secrets and lying about it for five years.
Wednesday, the Asia session was very quiet although another missile test in North Korea led to safe haven demand for yen. Eurozone Services PMI data was expected and wasn’t a trading factor. Sterling traded with an offered tone with Brexit concerns outweighing economic data.
In New York, the ADP Employment report surprised to the upside, posting a gain of 263,000 jobs versus a forecasted 187,000 and this gave the US dollar a bid. The release of the FOMC minutes created a flurry of activity due to the discussion on balance sheet reduction. The US dollar ended the day on a mixed note and not very far from its opening levels.
Thursday, FX markets were rather whippy in Asia and Europe. Weaker-than-expected China Services PMI data undermined AUDUSD. USDJPY was sold on Fed balance sheet reduction concerns. In Europe, the European Central Bank unleashed the big guns to ensure that markets understood that they had not changed their policy. EURUSD declined but was unable to break below 1.0630, the bottom of the range this week.
A better-than-expected US jobless claims report gave the greenback support during the New York session, but not enough support for the dollar to break out of this week’s ranges. Oil prices rallied despite earlier reports of a rise in US crude inventories and talk that Iran would increase production by 600,000 barrels per day by the end of the year. President Trump and president Xi‘s meeting and Friday employment report limited price action.
Friday was explosive. A wave of risk aversion washed over markets in early Asia trading when it was announced that the US launched missiles at Syria in retaliation for the country’s alleged use of chemical weapons. Risk aversion did not last when it became apparent that it was a “one-off” response and not the start of a war. The focus quickly shifted to nonfarm payrolls where disappointing data led to a US dollar retreat.
Friday’s nonfarm payrolls number showed fewer Americans preparing to start new jobs
than the midweek ADP figure portended. Photo: Shutterstock
— Edited by Michael McKenna