Today's FX Comment

January 23, 2025?

Good morning. President Trump's first interview from the Oval Office aired on Fox last night. It was a bit like the "Festivus" episode of Seinfeld, some definite "airing of grievances" but the interview steered clear of tariffs and for the market and for today at least that's a win. The President is up again later this morning in a video address to the WEF at Davos. We'll be watching for the "feats of strength" and maybe hoping for a Festivus miracle and no mention of tariffs....

Ahead of Trump's Davos appearance the market is treading a bit cautiously this morning. Overnight, Asian indices were mixed with the Nikkei and stocks in mainland China leading the way higher. Chinese equities were given a lift after news that Chinese authorities are guiding local mutual funds and insurers to raise their holdings of onshore equity to support the market. Guiding is a gentle term, telling is probably more like it. Mutual funds are expected to raise their holdings of onshore equities by at least 10% annually for the next three years, while large insurers will need to invest 30% of their new policy premiums onshore as well. China's Securities Regulator is also apparently guiding (telling?) listed companies to increase share buybacks and implement more aggressive dividends policies. That is a definite push for a stronger stock market out of China.

European markets are all trading higher this morning. French business confidence was a bit weaker than expected but we know right now that the focus is more on Trump trade policies and as far as tariffs go, any day with no news is good news. futures point to a slightly lower open in North America, maybe a bit of nervousness ahead of Trump's performance later this morning. So far, the President has threatened but steered clear from actually implementing tariffs. The longer Trump's focus stays on things like deregulation and away from triggering potential trade wars the better. It would be great to avoid tariffs altogether, but you know they are coming in some form, when they hit, I think sentiment takes a dive.

FX thoughts:

JPY - We have the BOJ rate decision later this evening, here's a hint, they're hiking rates by 25bps. More about BOJ Governor Ueda headlines after the decision and with inflation still above target and wage growth expected to be healthy again this year further rate hikes can't be ruled out. I think you sell rallies in USDJPY, Japan has talked about the negatives of a weaker Yen on real wages, is likely set to intervene ahead of 160 and as I have mentioned? there is always the threat that Japan gets accused by Trump of using a weak currency to fuel a trade imbalance (Japan's trade balance was better than expected last night, with exports supported by that weaker currency). Support 154.40 and 153.30, resistance 158.80.

AUD - For now it is all about broader moves in the US Dollar and in equities for the Oz. You would have to think the longer China can avoid serious Trump tariffs the more confident people will be to buy AUD. Next topside level is .6335,? major support .6170.

EUR - I admit, I am surprised the Euro is holding up as well as it has given a more dovish sounding ECB and of course the ever present threat of Trump tariffs. I mean Trump did say the other day "the EU is very bad for us. They treat us very badly.” I suppose the market is already pricing a fairly aggressive ECB rate cut path and is already short Euro looking for a move to parity so maybe those shorts need to get squeezed a bit more before the Euro trades lower.? Support 1.0335, resistance 1.0490.

GBP - UK business optimism data slipped, I suppose not a huge surprise but it has had little impact on Sterling as UK Chancellor Reeves seemed to have done a good enough job at Davos to soothe the market's nerves around a fiscal crisis in the UK. Resistance 1.2375 and 1.2470, support 1.2260.

CAD - We have retail sales data up shortly but the print is for November, always stale and even more so when the market's real focus is on potential tariffs. We will get the flash estimate for December and I wonder if the Trudeau tax holiday (which ultimately led to his undoing) will juice the data for that month. In the end, likely not too impactful, the number won't change the BOC's mind regarding their rate decision next week (cut pretty much all priced in) and the retail data will only be a momentary distraction from a market that is focused on every word from Trump. Resistance 1.4435 and 1.4475, support 1.4360 and 1.4305.

Good luck.