As every trader will tell you, it’s a lot easier to pontificate about the market outlook than it is to actually execute your vision.
Nowhere was the Trump rally more evident than in the currency market, where the greenback went on a tear from Election Day until just before the holidays.
But here’s the thing, the USD/JPY which is the purest proxy for dollar confidence, has not made a fresh high since December 15th. In fact, last night, it saw a vicious selloff in Asian session trade, dropping more than 200 points from Monday’s highs.
The selloff came despite a decent Non-Farm Payroll number last Friday, which saw average weekly wages rise by 0.4%. Wages are the absolute key to both U.S. economic growth and to dollar strength going forward.
|As unemployment declines, America’s economic growth now depends upon increasing wages.|
With 95% of job seekers now employed, the issue for the U.S. economy isn’t jobs — it’s money.
Which brings me to the recent market price action. The unifying theme across equities, bonds and currency is stall. All three assets are stalled just below the recent highs. The Dow can’t break 20,000, the 10-year U.S. Yield can’t rise above 2.5%. And the USD/JPY is well off the 118.66 highs set in mid-December. The general rule of trading is when news is positive but price action is negative, you should trust the price action.
The market euphoria is clearly wearing off because traders now want to see hard data before they commit fresh capital to the pro-Trump trade. Tomorrow, President-elect Trump will face the media in a formal press conference for the first time since July. Most of the questions will likely be political in nature, but it’s how Mr. Trump addresses questions on economic policy that could have the biggest impact on markets.
The Trump rally was kicked off precisely because Mr. Trump instantly dropped the most abrasive political points of his platform in the November 9th post-election speech and focused on economic reform. If that’s the message he brings to the press, the flagging Trump rally could revive across all assets.