Donald Trump’s metal games: economic stupidity or political strategy? Weekly Outlook for USD.

Good afternoon and with the start of the new trading week, my friends and readers.
With you Andrew “Golden Eye” Green.

In general, as usual, before exploring the prospects for the next week, let’s take a quick look at the basic drivers of the past:

• The first speech of the new head of the Fed, Jerome Powel before legislators from the House Financial Services Committee.

The main theses were:

• the strengthening of the US international influence on the dynamics of international development;
• The need to further stimulate wage growth at historically low levels of unemployment. Increased attention to the growth of inflation and a further increase in the discount rate and a decrease in the balance of assets of the Fed;
• revision of existing aspects of the FRS regulatory policy;
• despite the attempts of participants of the speech, the head of the Federal Reserve refrained from commenting in excess of the main directions of the current policy of the Fed.

In general, the identity of the new head of the Federal Reserve is now under the scrutiny of the public, because of its obvious pro-Tramp appointment. The manipulative and populist actions of President Richard Nixon (Richard Milhous Nixon) in the 1970s with his appointments of trustees to the structure of the Federal Reserve, the FBI and other departments, which in their essence were supposed to remain accountable but independent instruments of power, are still fresh in the memory of the US economy . Then it all ended with the Watergate scandal, impeachment and a long, almost 10 years, period of economic recovery. How far will Donald Trump go this time? – We will see.

• Statement by Donald Trump on the introduction of new tariffs for the export of steel and aluminum in the US, thereby starting a new round in the history of protectionism and economic world confrontation.

Regarding this statement and its implications for the world economy and the US economy, experts’ opinions are divided. Most of them adhere to the opinion that this is the “first shot” in the world trade war, which Trump is unleashing, with the aim of forming the dominant position of the US in the arena. But there are also a number of experts who are slow to exaggerate the events, based on the fact that the statements themselves, first of all, are not yet actions, and secondly, that the combination of these tariffs influence on the US and the world economy, for all success will be minimal. And the excitement that is unraveling is just a certain way heated public opinion against Tramp’s tough measures to create a strong US economic position in the world arena and to protect the interests of the national producer and the policy of creating more jobs in the US at a better level.

We can study the impact of these news on the financial market, relying on objective indicators of the stock market. Let’s start, perhaps, with the Dow Jones (Figure 1).

As we see, the negative influence persists, but to call it a panic, of course, is not justified. The index confidently holds above the value of 24000.00. And, after the fall in the first half of February 2018 to the level of 23500, looks quite confident. It is possible to talk about further decline is only after a confident non-situational breakdown of the level of 23000.00 and stable consolidation below it.

How much investor sentiment currently corresponds to the information glow should be estimated using the VOX volatility indicator from CBOE (Figure 2).

Here we also observe a slight upsurge in response to Thursday’s statements, but Friday returned panic to more controlled ranges, below the 20-unit mark. To a greater extent, this speaks of tranquility than about the desire of investors to look for more “safe havens” for their capital.

My opinion is that the market is waiting for more specific data on the Trump’s statement. Even the fact of the introduction of such tariffs at the current time is not enough to form any directed trends. And it should be taken into account that the policy of protecting national interests, or protectionism, has uniquely positive aspects for the national producer, it all depends on the level and depth of interference in international trade flows.

How did this all affect the US national currency index? And what to expect next week?

Let’s take a look at the daily chart of futures for the USD index (Figure 3).

Well, the resistance at 90.00 so far holds, but more uncertainly. In the absence of external stimuli, the further dynamics of the index is more likely to grow. Strong support for the growing sentiment remains at the level of 88.00.

The main recommendation is BUY!

Examples of transactions:

• conservative option:
  BUY limit 88.50, SL 87.50, TP 91.50
• aggressive option:
  BUY (from the current 89.95), SL 87.50, TP 91.50

There are always a lot of people on the market who are FOR and AGAINST.
Be for yourself and against all that prevents you from self-development.

Andrew Green