To each asset - on «tramp». Life goes on

Increase in prices for oil over a mark of $50 may be the cause of the revival of the shale industry of the USA and loss of the share by oil cartel in the market

The world outlived the next shock from unexpected election results in the USA: share assets and all base currencies crashed, gold and treasury securities of the USA jumped up in the price. Politicians in panic, investors in confusions, the business, which staked on Trump, is quite happy. The market calms gradually down and turns, and is strict according to the technical analysis.

The main idea inspired in America by economists from Wall Street and officials from FRS was regular Americans shall be happy a current status of the economy. Unemployment is low, the cost of houses and shares high (but available), sales of a car rising, the credits cheap, the prices stable, GDP grows, though not so quickly as promised.

The reality is absolutely other: standards of life of Americans all this time were subsidized due to a trade deficit of the country. Monetary mitigation from FRS doesn't work anymore. During 8 years of government of democrats Washington in fact borrowed $10 trillion (almost as much as the first 43 presidents borrowed for more than 220 years) whereas FRS increased the balance in 5 times more than for the previous 94 years of the existence. The American voters, at last, noticed the lack of a dress at the king and promised by Obama (8 years ago) improvements in the economy, also made a protest by the method, only available to them.

OPEC also got a headache in the amount of Donald Trump. Threats «to punish» Iraq for arbitrariness, to stop import from Saudi Arabia, to weaken regulation of the energy sector, to flood the market with the own oil and to make America energetically independent becomes quite real outlines. Increase in prices for oil over a mark of $50 may be the cause of the revival of the shale industry of the USA and loss of the share by oil cartel in the market. At a meeting in Vienna, on November 30, the OPEC will discuss reducing production volumes for price stabilization again, but there are practically no chances of adoption of the serious decision. It forces participants of the market to leave long positions in oil futures which were opened on news about an unexpected victory of Trump on elections in the USA.

However to promise - doesn't mean to marry at all: as a rule, pre-election slogans strongly differ from real steps. It is clear, that now the populist Trump not to care about budget deficit - he is ready almost uncontrollably to raise state expenditure, but generally, he enters a position only on January 20, 2017, and hardly will be able to influence the budget already begun 2017 financial year. Years can leave on reforms in the field of the taxation in general, the gap with global partners may lead to trade wars and the conflicts with large business.

The wall on the border with Mexico, however, isn't canceled yet. Trump is going to deport criminals foreigners, to toughen control over the border, to realize policy of priority employment for Americans. So far it is unlikely that the new president accurately understands how he should do, but he is obviously not ready to listen to the opinion of those who understand it. Politicians and analysts are too discredited and though not Trump`s fault because of all this mess, he should clear away it.

Briefly results of last week:

  • Trump - risk factor for the EU, so they won't begin to turn QE;
  • The Bank of England avoided further mitigation of policy;
  • Brexit possibly won't be tough, and Theresa May is on friendly terms with Trump and the first of world leaders received an official visit invitation;
  • Yuan continues to sustain losses and a bottom isn't visible yet;
  • The Swiss franc outlived a week almost without loss, but there was «persistent» information that the Bank of Switzerland doesn't plan to make the interventions. It should be understood on the contrary: as the first verbal warning of inflow of liquidity on the market.

There will no changes in policy and the closest plans of FRS, except for steady opinion that the second term on a post of the head of the Federal Reserve for Janet Yellen is not possible. More obviously «Trump's factor» can appear at FOMC meeting on December 14.

Following 5 general political purposes: within a year votings will take place in Italy, Austria, the Netherlands, France and then in Germany. The discontent with political and business elite, inequality, the flow of migrants, will strongly affect results, it is difficult to predict. Less than a month to the first test.

From the other news we will note the following:

  1. The stock markets of Asia sharply went to minus. Investors switched to treasury bonds of the USA in connection with the increased profitability of these papers. The prices of primary goods continue to grow on expectations of heavy expenses of the USA on infrastructure in case of Donald Trump. Copper rose in price on Thursday for 3,6%. The cost of iron ore increased by 4,4%, to a maximum in two years, growth continued on Friday.
  2. The strong sale of state bonds showed that if before elections the financial market was sure that Trump's election as the president will become catastrophic crash for the economy, then on Wednesday, having an election result, trade interest was quickly enough turned by 180 degrees. Profitability of 10-year papers of the USA reached a January maximum at the level of 2.15% because of an exit from transactions of the carry trade and a capital outflow from the markets of high-profit assets.
  3. Trump is ready to repeal Dodd-Frank's law and to claim a number of new ultimatums in several international organizations. The USA can leave Trans-Pacific Partnership for the first 100 days, NAFTA for the 200 days if requirements of the USA aren't fulfilled.
  4. Trump's opponents held «peaceful» meetings under a hashtag #NOTMYPRESIDENT in New York, Chicago, San Francisco, Auckland, Philadelphia and Seattle. Protests also passed in Pennsylvania, Oregon, on the western coast there took place a number of large meetings in Seattle and Auckland. A number of arrests for hooligan actions as a result.
  5. Together with presidential elections, Americans updated both chambers of the Congress: the lower house of representatives is re-elected completely, the structure of the senate - for 30%. At the same time, there took place vote for marijuana legalization: California, Nevada, Massachusetts and Maine approved, and Arizona voted against. In the State of Nebraska, this day there took place the referendum on the recovery of capital punishment (solved - restore!).
  6. Perhaps, under the impression of marijuana legalization, the idea of independent California quickly gains popularity. The founder of the Yes California Independence movement Luís Marinelli, one of the most contradictory political figures in the USA. The detachment subject, so-called Calexit, implies a referendum on independence in the spring of 2019. In Texas and other states voting for Clinton separatist sentiments ripen too, however to California still far.

The market is in the homestretch of the year. Shock is passed, the market recovers an operating mode. Against the background of the promised changes in the economy, the dollar has a good chance to become stronger in relation to currencies of commodity and raw group. As the reality of the program of Trump clears up, repatriation of the equities will gain strength and to give strong support to the American currency. The dollar showed all it is capable … so far. Still early to say about how the foreign exchange market in new circumstances will behave. One is clear: both rumors and real actions will provoke the sharp growth of volatility and can weaken the dollar.

EUR/USD: supports: (1.0732/1.0709) (strong) - (1.0664/1.0632) - (1.0607/1.0580) (a protection zone); resistance: (1.0855/1.0870) (strong) - (1.0892/1.0912) - 1.0930 - 1.0960) (very strong) - 1.0990 - 1.1020 (a zone of protection of level 1.1000). So far we look down, but the situation is dangerous by a sharp throw in range (1.0954 - 1.0991).

GBP/USD: resistance: (1.2580/1.2619) (strong) - (1.2654/1.2668) - (1.2703/1.2752) (strong); supports: (1.2495/1.2477) (strong system of protection) - (1.2400/1.2375) (protection). Breakdown 1.2700 is dangerous by the considerable movement up.

Author: Navsher Bartash,
ForexChief Currency strategist