Trump Is Back to His Old Ways

[Ben Graham]

Yesterday, the dollar quickly resumed its decline against risk assets, barely having time to properly enjoy the strong U.S. GDP data.

This happened immediately after Donald Trump said that he expects the Chairman of the Federal Reserve to cut interest rates. This is yet another signal that the president wants a Federal Reserve chief whose policy would be aimed at lowering borrowing costs. Let me remind you that the deadline for Trump to announce his choice to replace Jerome Powell is approaching. "I want my new Fed Chairman to cut interest rates when the market is booming, not destroy the market for no reason," Trump wrote on social media. "Anyone who disagrees with me will never become Fed Chairman!"

Trump has repeatedly stated that he is interested in overcoming recent trends in which encouraging economic data are sometimes accompanied by market sell-offs due to fears of inflation and corresponding interest rate hikes by the Federal Reserve. "In the old days, when good news came out, the market went up," Trump wrote. "Now, when good news comes out, the market goes down because everyone thinks interest rates will be raised immediately to deal with potential inflation."

For this reason, yesterday's decline in the dollar showed a clear correlation with President Trump's remarks. His persistent calls for interest rate cuts are not merely economic analysis, but rather a political maneuver aimed at stimulating economic growth. Investors perceived this as pressure on the independence of the central bank, which certainly had a negative impact on the attractiveness of the dollar. However, it would be wrong to reduce everything to political factors alone. Despite strong GDP data, concerns remain about the sustainability of U.S. economic growth toward the end of this year due to the shutdown. Inflationary pressure, trade wars, and geopolitical uncertainty—all of these factors will continue to restrain investor enthusiasm.

As noted above, according to the data, U.S. gross domestic product adjusted for inflation grew by 4.3% year-on-year in the third quarter, exceeding all estimates.

Last week, the president said that he has narrowed his list of candidates for the position of Fed Chairman to three or four contenders and expects to make a decision fairly quickly, announcing it within the next few weeks. Trump said that Kevin Hassett, Director of the National Economic Council, and Kevin Warsh, a former member of the Federal Reserve Board of Governors, are among the leading candidates for the post. He also interviewed Federal Reserve Governor Christopher Waller and spoke highly of his work.

As for the current technical picture of EUR/USD, buyers now need to think about breaking through the 1.1805 level. Only this will allow them to target a test of 1.1830. From there, it would be possible to climb to 1.1860, but doing so without support from major players will be quite difficult. The most distant target would be the high at 1.1901. In the event of a decline in the trading instrument, I expect any serious action from large buyers only around the 1.1775 level. If no one is there, it would be a good idea to wait for a retest of the low at 1.1754 or to open long positions from 1.1729.

As for the current technical picture of GBP/USD, pound buyers need to take the nearest resistance at 1.3555. Only this will allow them to target 1.3590, above which breaking through will be quite difficult. The most distant target will be the 1.3622 level. In the event of a decline in the pair, bears will attempt to take control of 1.3505. If they succeed, a break of this range will deal a serious blow to bullish positions and push GBP/USD down to the low at 1.3475, with the prospect of moving on to 1.3445.

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