Trump’s Return to the Presidency Sparks a New Era in the Markets
On January 20, 2025, the Trump 2.0 administration officially began, marking the start of a new chapter in U.S. governance and global influence. This inauguration heralds anticipated shifts in trade policies, foreign relations, and economic strategies, potentially sending ripples through equity, forex, and commodity markets.
Market Dynamics: Tug-of-War Between Yen Strength and Dollar Rally
On the inauguration day, the markets oscillated between optimism and caution as investors dissected Trump’s policy agenda. USD/JPY fluctuated significantly, moving from the 154 level to above 156, prompting a statement from Japan’s Vice Minister of Finance for International Affairs, Minoru Muraoka, who warned that “disorderly moves are undesirable.”
Key factors driving yen strength include:
- BOJ Rate Hike Expectations
Scheduled for Friday, the BOJ’s monetary policy meeting has an over 80% probability of a rate hike priced in by markets, adding upward pressure on the yen. - Uncertainty Surrounding Trump’s Policies
The lack of clarity around the administration’s trade policies and fiscal measures continues to fuel risk-off sentiment, encouraging safe-haven yen buying.
Key Takeaways from Trump’s Inaugural Address
President Trump’s speech laid out ambitious goals for domestic revitalization and global leadership, focusing on economic growth, national security, and restoring American dominance on the world stage. Highlights include:
Domestic Policy
- Prioritization of “law and order” and a merit-based approach to governance.
- Opposition to mandatory vaccinations, with plans to reinstate dismissed military personnel and provide back pay.
Foreign Policy
- A renewed push for peace in the Middle East and plans to regain control of the Panama Canal.
Economic and Infrastructure Development
- Promises of large-scale tax cuts and infrastructure investments.
- An emphasis on technological innovation, including advancements in space exploration.
Cultural Vision
- Advocacy for unity and the rekindling of America’s frontier spirit to usher in a new “golden age.”
Market Insights and Strategies
1. Equity Markets
- Sectors to Watch: Infrastructure, energy, and financial stocks stand to benefit from Trump’s policy priorities.
- Short-term Approach: Await concrete policy announcements before committing to a risk-on strategy.
2. Forex Markets
- USD/JPY: The BOJ meeting and Trump’s trade policies are key. Expect volatility around the 155 mark, with potential tests of 154 or 157 depending on policy clarity.
- EUR/USD: Weak European economic data supports a bearish outlook, with potential for further declines below 1.02.
3. Cryptocurrency
- Bitcoin: Should the Trump administration adopt a crypto-friendly stance, Bitcoin could extend its rally. With prices above $100,000, dip-buying opportunities may arise during short-term corrections.
4. Gold (XAU/USD)
- While gold may see short-term corrections amid risk-on sentiment, rising inflation expectations could provide a solid foundation for future gains.
Upcoming Events to Watch
- January 23: Trump’s keynote address at the World Economic Forum in Davos. Key insights into trade policies and geopolitical strategies are expected.
- January 24: BOJ monetary policy decision, where a rate hike or its absence will significantly impact USD/JPY and other yen pairs.
- Global Data: Germany’s ZEW Economic Sentiment and Canada’s CPI could drive volatility in EUR and CAD pairs.
Conclusion: Riding the Market Waves
The Trump administration’s re-emergence, coupled with pivotal monetary policy shifts in Japan, sets the stage for heightened market volatility this week. Traders and investors must stay agile and informed to navigate the rapidly changing landscape.
Trading Strategies:
- Prioritize short-term adjustments while waiting for clarity post-major events.
- Consider Bitcoin and gold as potential hedges amid macroeconomic uncertainty.
- For forex, maintain disciplined stop-loss settings to manage volatility in USD/JPY and other currency pairs.
As we enter this transformative period, the ability to act decisively while maintaining a clear view of the broader picture will be critical for success in the markets.
