Could the ‘Trump trade’ become ‘Trump disappointment’?

Is the Trump honeymoon over? That is the question being asked today after the breaking news late last week and what has dominated attention over the weekend with this being that President Trump was defeated in his quest at replacing Obamacare.

The result of the Trump healthcare bill was not in line with market expectations, but more importantly it has made the markets begin to get nervous about what other possible hurdles Trump could potentially face when it comes to implementing other aspects of his campaign agenda.

Truth be told Obamacare was ripped apart from its infancy around the same time it was introduced seven years ago, yet it seems to still be more popular than whatever President Trump and his team proposed to replace it with. If Trump is going to face such opposition with the House of Representatives as he has with healthcare when other proposals are presented, it does make you wonder what could happen when he attempts to push through his proposals on tax reforms and other promises he made during his political campaign.

Investors have certainly priced in huge premiums into the financial markets following the night Trump was declared victorious in the US election based on his campaign promises, but actions speak louder than words and this could be a turning point and investors will need to monitor how the markets react as trading continues to get underway for the new week.

Where does this leave President Trump? Under the spotlight to provide the necessary clarity on his tax reforms plans. Trump has already signalled that he is set to move onto the next phase of his Presidential plan, which is cutting taxes and this is the key contributor to the heavy rally throughout the financial markets. Tax reforms and fiscal stimulus promises also represents a key reason why heavy gains were priced into the markets as investors thought Trump could be good for the US economy, but few people would have thought replacing the unpopular Obamacare would become this complicated and it’s unlikely passing tax reforms and other aspects of fiscal stimulus that will increase national debt will be plain sailing.

Dollar slides down the charts

The Dollar has opened the new trading week slipping lower against the overwhelming majority of its trading partners following the doubts settling in that President Trump could face further obstacles when it comes to implementing other aspects of his campaign promises. Risk aversion is somewhat the name of the game taking place, with Gold climbing back towards a three-month high last seen in late February above $1250 and the Japanese Yen once again acting as a trader’s best friend in times of market uncertainty. Emerging market currencies are also gaining from the weakness in the US Dollar, and these will be contenders to regain the most ground if the USD does enter a slump with it being well-known that these markets were seen as the most vulnerable to Trump’s presidential agenda.

Currencies like the Malaysian Ringgit, Korean Won, Indian Rupee and Chinese Yuan are just some of the many that could benefit from USD buyers taking a spell on the sidelines. The USD Index has closed below the psychological 100 level that was previously viewed as a critical benchmark, meaning this could make technical traders think twice before purchasing the USD on the pullback like they have done in recent months.

Gold gains but Oil resumes its slump

Gold is as you would expect one of the main beneficiaries from the USD weakness, and traders will now be monitoring whether any additional moves towards risk-off from investors and further losses in the equity markets provide the platform for the value of the precious metal to continue its recovery that it has experienced over the first quarter of 2017.

While Gold is one of the commodities that is enjoying consistent buying momentum, Oil is most certainly not and has resumed its weakness into the new trading week despite reports circulating over the weekend that major Oil producing nations will consider extending their recent cuts in production.

GBPUSD and EURUSD benefit from short squeeze

Both the GBPUSD and EURUSD have climbed significantly higher as the markets welcome the new trading week, with the Pound up 1% and the Euro around 0.85 % at the time of writing.

This week represents the week where UK Prime Minister Theresa May is widely expected to invoke the long-awaited Article 50, which in simple terms essentially means delivering a letter to her counterparts in Europe saying I want a divorce. While short options on the Pound are around record levels with the ongoing uncertainty expected with Brexit negotiations, traders need to be careful how they position themselves because further short squeezes on the USD can all of a sudden lead to additional bounces higher on the Pound.

Where does the Eurodollar go from here? It’s already climbed to a 2017 high this morning above 1.0895 and above a four-month high, but if it wasn’t for the impending political risks in Europe I would personally say that the Euro is the most oversold currency in the developed markets. Ambitious investors who believe the Dollar is set to weaken further could possibly be targeting 1.10.