US: Main event to be President Trump’s State of the Union address - ING

In an action-packed week for global markets, the main event will be President Trump’s State of the Union address (Tue 2100 ET) – which is set to outline the administration's 2018 policy agenda ahead of the pivotal November midterms, according to Viraj Patel, Foreign Exchange Strategist at ING.

Key Quotes

“With US trade policy in particular focus, the burning question for investors is which type of Donald Trump will turn up: Dr Jekyll or Mr Hyde? While the former manifestation may have appealed to the international elite at Davos, we would not be entirely surprised to see the more fiery characteristics of the President surface back on home soil in Washington. Indeed, with President Trump fighting  low approval ratings, fresh allegations that he wanted to fire Special Counsel Robert Mueller last year and with little policy progress to show (beyond the Tax Bill) – there’s every chance that the ‘America First’ policy talk has a protectionist sting in the tail this week. As such, we expect global risk sentiment to remain on red alert ahead of the speech – with outside risks that USD/JPY could fall to the 107.00 level on a more contentious Trump State of the Union address.”

“As for the dollar’s broader trajectory, it will now be very difficult for Washington to put the ‘weak dollar’ genie back in the bottle. The damage is already done – and with structural factors – such as a late US economic cycle, relative US asset valuations and the twin current account and fiscal deficits – all supporting a weaker dollar trend, the naturally tendency will be for the greenback to fall over the course of 2018. Add a US political and policy uncertainty premium into the mix – and the dollar’s decline could transpire quicker than what we had initially expected. Fading any dollar correction is our preferred medium-term strategy.”