How do you pronounce Trump trade?

I’ve presented two charts below, first The US Dollar Index. I tend to watch this index as its a broad measure of The US Dollar’s exchange rate against a basket of six of America’s most important trading partners i.e., EUR, JPY, GBP, CAD, CHK & SEK. Its better to look at a broad measure than any specific currency pair, as the relationship between any two currencies might be distorted due to isolated, nation specific factors.

We can see the strong dollar euphoria actually began before election day. But we already know lots of Investment Banking chatter predicted an election win by then-Mr Trump. So not really a surprise, but what was a surprise was the sharp run app in USD, some 6.25% in roughly 46 days, or about 61% annualised. BLISTERING doesn’t begin to describe the speed of this ascent.

And then the fall. We see the USD declining at a relatively modest speed, roughly 9.1% from its December 20th peak to where its has currently settled out. What happened? Most curiously this is all taking place in an environment of divergent monetary policy, in other words, as interest rates rise in The US even as they remain constant among most of America’s trading partners, theory would predict we should see The USD rise. But a recurrent theme in many of my presentations on finance is the undeniable fact the markets very often does disagree with theory. RUTHLESSLY SO it would seem.

And the US Dollar has weakened, in fact it is now trading at levels we’ve last seen in 2015, or at a two year low. Some are suggesting the weak US Dollar is the big surprise of 2017.

So again, what happened? Lets talk about that later. Meanwhile, below I’ve presented three different stock market indexes, $SPX, aka “The S&P 500″, $INDU aka, “the venerable Dow Jones Industrial Average” and $COMP or “The NASDAQ”. Clearly all are booming and decidedly so!.

So what’s going on? Well a lot can be said for different markets, different market participants. And that’s true. The foreign exchange market tends to be dominated by professionals. And while professionals also dominate trading of the US stock markets, retail investors tend to buy and hold. And we’re still seeing lots of retail money flow into US stocks, much driven by 401K auto investment programmes, even as professionals withdraw from trading.

Net result: USD falling due to concerns about Mr Trump’s agenda. Stock markets soaring as retail money keeps flowing. Retail money is very, very bullish.

Meanwhile, speculation about an upcoming crash simply does not go away.

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