US election: the day after

Watch for a US / UK trade deal (by Peter Rosenstreich)

President-elect Trump's astonishing victory in all probability will give UK pro-Brexitors an “ace up their sleeve”. Current negotiations between the EU and the UK have been relatively deadlocked with both parties’ leverages being relatively balanced. That is because in reality both economies need each other equally (despite occasional hostile rhetoric). Yet, the scale could be tipped in the UK’s favour with the inclusion of outside trade agreements. Sitting US president Obama, prior to the EU-referendum, indicated that the UK would not get preferential treatment and would have to go to the back of the line. How things have changed. On the campaign trail Trump was extremely supportive of Brexit and quick to provide himself accolades for calling the historical outcome. In addition, consistently drawn parallels between his campaigns and the Brexit referendum indicate deep support for UK independence. Pro-Brexitor Nigel Farage was the highest ranking UK political figure to have shown his support for Trump. Trump’s comments that Britain would not be “at the back of the queue” indicate that he would be willing to fast track a UK trade deal. What a Trump presidency will look like is unknown, however we suspect that there is enough evidence to predict a quick trade deal will be on table for the UK which they can use to leverage in EU negotiations. Firstly, the US president has significant influence over trade and with a republican house and senate could move without resistance. Secondly, Trump bragged about his deal making prowess and will be eager to show the world. Thirdly, slightly anti-Europe comments on NATO and EU, suggest that the EU/US trade agreement will be challenging. Finally, Trump more than anything likes to be right. As the US president Trump is in a unique position to define the direction of Brexit. We remain constructive on GBP in the near term as we don’t anticipate political comments to indicate a “hard” Brexit.

Markets finally bullish after Trump’s election (by Yann Quelenn)

Yesterday was one of those days where a massive sell-off was expected. Upon Trump’s election, S&P futures crashed to a 4-month low. A black day loomed. However, eventually, the markets pared their losses and even finished on a higher note. It seems that Trump’s speech cooled market anxiety as investors realised that it is only when Trump begins his presidency that markets will truly understand what he intends to do. For the time being, Obama remains president until the 20th of January.

Nonetheless, we believe that markets expect that a large fiscal stimulus package will be among Trump’s first measures. On top of that, there is the widespread idea that Trump will do whatever possible to reduce regulations, which actually works in favour of the markets. The latter idea is widely supported by the fact that Republicans now hold power over the White House and congress.

We also believe that the tough words spoken against the Fed on the campaign trail will subside now that the election is over. In the short-run, the Fed will soon be back in the spotlight and despite the fact that markets are pricing a lower likelihood of a Fed rate hike through Fed Funds Futures, US government bond markets are supporting a normalization of monetary policy.

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EUR/GBP - Bearish Breakout.

EURUSD

EUR/USD is finally getting lower after strong volatility amid Trump's election. Key resistance at 1.1352 (18/08/2016 high) looks far and the pair is now retracing to yesterday's levels. Expected to see further decline. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support is given at 1.0458 (16/03/2015 low).

GBPUSD

GBP/USD is consolidating and the pair remains below resistance at 1.2557 (04/11/2016 high) while hourly support is given at 1.2354 (09/11/2016 low). Strong resistance stands far away at 1.2771 (05/10/2016 high). The short-term technical structure suggest further strengthening. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USDJPY

USD/JPY 's selling pressures have spiked before bouncing back. Hourly resistance at 105.53 (28/10/2016 high) has been broken. Key support can be found at 100.09 (27/09/2016). Expected to see further upside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF

USD/CHF is edging higher. The pair lies within a resistance area where sales pressures are likely to increase. The pair has already largely retraced, yet further upside moves are likely to happen before reloading bearish positions. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support