Let's "Make America Great again"! - Donald Trump echoing Ronald Reagan 

 

                                  Source: Trump Exploratary Committee 

 

Introduction: A powerful echo of a slogan which would easily last for years to come. A huge majority across the globe as well as Americans alike found president (have to get used to this) Trump's win to be surprising, especially given his collective landslide victory over previous Democrat ruled territory (North Carolina, Ohio, Florida, Iowa, New Hampshire, Michigan and Virgina) but is it really? 

 

Given what transpired during Brexit, in line with several of our views during the earlier half of the year, we can now properly look into a few things which denotes Brexit and Trump's victory as similar (although some may view that these two occurrences are arguably different, at least our lead economist and some of the team here at EssenceFX views that certain visible elements of propaganda exist which make both of these events relatedly similar); they all share these three 'why's', 'how's' and 'what's' in common:

 

Why were so many Americans in support of Trump ? - In short, I'd applaud mainstream media for doing extremely well on heightening emotional intensity through classically conditioning the larger majority of "Little Albert's" in America towards feelings of anger, discontent, and insecurity fuelled by acts feeds of terrorism, loose policies on immigrants, and loss of jobs and deteriorating income. The existence of commercialized media and more so for social media, allowed the various categories of affected Americans to share and resonate with one another, creating a strong fellowship of growing discontent within the affected classes in the American society.

 

 

1) Economic Nationalism, as fuelled by mainstream media seems to be a widely utilized tool by certain forces to promote segregation and supremacy. Similar to the large majority of Brit's who have been preconditioned to reject the idea of having to continue to be bogged down by the array of problems faced by Europe, which eventually paved way for irrational xenophobia - the main culprit which we think eventually led to the BREXIT outcome, the Americans alike have been long fed with narratives such as Islamophobia, terrorism, and subdued yet apparent anti-Mexican sentiments; topics which address or totally reject forms of immigration / integration. In addition, similar to the Brit's which pretty much did not like the idea of having to pay a significant amount of money to the European Union to finance troubled members, the majority of Americans disliked the Trans-Pacific Partnership Agreement (TPPA) due to the increased risks it could bring to the American labour market and intellectual property rights; the rejection of free trade in advocate of protectionism. With Donald Trump naturally being the somewhat obnoxious person that he is, what Trump voiced out without restriction very likely coincided well with the frustrations which have been long dwelling in the hearts of the common American for quite some time now which leads us to our next point in discussion; a wholesome overview on the 'who' and 'how' factor which Trump zoomed into further.

 


                                                                                                                                   Source: Google images 

 

 

How was Trump able to win ? - In short, through leveraging on the abovementioned repetitive media fed (American majority perceived) negative elements; the existence and words of Trump presented in an unequivocally masculine manner brought about solutions of sovereignty, protectionism, and straightforward conviction for action. Basically, his first large win we'd say is him being able to split and identify the larger majority of who we'd term as 'harmonized media preconditioned Americans'. His second win involved him focusing solely on this majority by stating things they wanted to hear in repetition with strong conviction; not much of a strategy really, it was beautifully and merely as simple as that. Would you need to teach a business mogul how to best utilize demographic based campaigning? Well an easy no brainer, of course not!

 

 

2) Demographics, with a focus on the American education gap, arguably played the most pivotal role in ensuring Trump the victory he needed. In reflection to what happened in Brexit and to no surprise, the eerie correlation between the education gap translating into the I'd say more left wing outcome is arguably similar. Notably, in America Trump won in more counties where less than 10% of adults had bachelors degrees. Breaking down this bit of statistics even further in terms of gender, Trump triumphed over Hilary gathering 62% of non-college-educated white women votes, despite his rude remarks towards women. In regards to the U.K, based on the findings from 'Lord Ashcroft Polls', survey conducted on 12,369 referendum voters points that 57% of those with a university degree voted to remain, while a majority of those whose education ended at secondary school or earlier voted to leave. At a glance, this might drive one to conclude that irrational mainstream media triggered sentiments, economic grievances or lack of understanding on potential country related repercussions due to the lack of education exposure is what led to this. However delving deeper, it is strongly arguable that these factors alone represent only a mere fragment of the truth. The very reason media imposed sentiments and economic grievances were able to elevate at such a relatable level is because the average American remains deeply suppressed in terms of personal income which leads us to our next point in discussion; a wholesome overview of the 'what' factor. 


Random not so fun fact: 45% of total voting Americans believed that they are safer with more gunsA large majority of Americans did not take part in polling and just swarmed in on voting day. Reportedly, a large group of these people voted for Trump simply because to them, it was irregardless who won but if it was Trump, he'd let them keep their guns. If one held good knowledge on the quantum of these less vocal social groups, would one then not be able to sway demographics to favour? =)

 

 

 

                                                                                                      Source: The New York Times, The Telegraph UK, YouGov

 

 

 

What changes did Trump preach to bring about ? - In short, amongst his notable propositions: The introduction of stricter immigration laws, ironically doing away with cost associated to climate change, putting an end to a prolonged low interest rate regime, shifting towards paid insurance based healthcare, a major overhaul in the federal tax code, and moving away from free trade in protectionism (not to forget his idea of wanting to build a wall along the Mexican border); which in hand follows his argument of wanting to promote better jobs and country growth, resonates well with the hearts of the people.

 

 

3) Unfettered Capitalism, a perhaps somewhat controversial term to begin with, as some might argue it cease to exist (as fettered would probably not equate to the wholesome picture of capitalism at all). Nonetheless for the purpose of this discussion, let us rebut against that anti-belief on a very surface level by saying that the level of intensity of capitalism in America, where it's application was allowed to grow enormously and freely (easily topping as the world's number one free market flag-bearer) that at least in the American context, the term 'unfettered' is relevant. Let us focus on the ultimate matter on hand which is a direct result of that, and which has been consistent with our view throughout our multiple write-ups; as frequently discussed on by Nobel Memorial Prize in Economic Sciences winner Joseph Stiglitz - Income inequality .

However before that, let's not get too far ahead before establishing that this was the root of Trump's victory without first establishing that it is irrelevant whether or not the 'education gap' over time, led to such disparity in social status. The EssenceFX view is regardless whichever pathway it was following, income disparity is growing and will continue to grow regardless, and will continue to render the more highly educated in society as of lesser worth and importance over time given the ongoing currency wars rhetoric and an increasing GINI disparity on a global scale - people as a whole are learning to accept lesser and lesser income.

In the case of America, the thing about voting for the Democrats is, with the idea of them being given a new term, matters of concern which invoke discontent amongst the white working class - who's livelihoods depended on the American manufacturing industries would continue to see their jobs being gradually shifted to Asia. At the same time, it's arguably human to have xenophobic sentiments grow as the affected American working class individual watches themselves become more and more complacent with their situation, whilst seeing migrant communities thrive as they would naturally do from hard work; - a narrative which would also hold true for other migrant communities across the globe, #BREXIT . Statistics show that about 73% of Americans have $1,000 worth in savings or less. In the case of UK, The Money Advice Service has found that four in 10 of adults in the UK have no more than £500 in savings, while a separate survey by ING bank suggested that 28% had nothing at all in their bank account. As of August 2016, both countries posted an unemployment rate of 4.9%; discounted figures which do not take into account the reduction of income received and the fall in qualify of lives (i.e longer working hours, higher debt, loss of public spaces, etc).  

Therefore to conclude on the psychological forefront, it's not like one would claw back on pretty primal values like building walls and closing doors; - a loss of income and on the subliminal end, the widening gap between the rich and the poor is what ultimately gave Trump his win.  

 

 

 

 

                                                                                                                                                                                Source: Metrocosm, The Equality Trust 

 

 

 

With the 'how' factor now better understood. Let us now examine the gaps which Trump proposed to fill. We'd like to start by taking a look at this quote by Sanders:

 

“... no president will be able to bring about the changes that the working families and the middle class of this country, that our children, that the seniors, our seniors, deserve.

 

No one president can do it, because the powers that be — Wall Street, with their endless supply of money; corporate America; the large campaign donors — are so powerful that no president can do what has to be done alone.” - Bernie Sanders

 

Sanders perhaps made it really easy for Trump; tying in our flow of consideration (i.e with strong nationalism, astute knowledge on demographics, and with very shrewd tongue, Trump stepped in and said: 

 

"There are two publics as far as I'm concerned. The real public and then there's the New York society horseshit. The real public has always liked Donald Trump." 

 

Hence with the existence of Trump, there is little significance in glorifying Clinton's huge access to funds, or the chain of media she commands, or anything else mainstream which seems to edge towards her favour for that matter. It was an approach as such, and lines like those which would enable Trump to make them look stupid most the time. Trump repeatedly took this kind of approach with strong knowledge and a resolute focus towards his targeted demographic majority; one which the pocket filled democrats underestimated in terms of numbers of American citizens belonging to these groups.

Finally to close off in in regards to this context, let's take a look at Trump's more heroic promises made to woo support from these groups of Americans (with punchlines underlined):

  • Stop illegal migrants from Mexico from coming in to America by build a multibillion-dollar wall along the US southern border and making the Mexicans pay for it.
  • Proposing to renegotiate or possibly even scrap off the North American Free Trade Agreement (NAFTA), terming it as 'the worst deal ever'.
  • Halting immigration from regions of the world that are compromised by terrorism as well as subjecting Muslims living in America to complete an ideological certification by which they would have to show they share American values.
  • Showing resolution to totally block off the Trans Pacific Partnership (TPP) and transatlantic Trade and Investment Partnership (TTIP), quoting that if this deal goes through, it will make 'NAFTA look like a baby'.

  • Pledging to do everything in his power to undo former President Obama’s ambitious domestic and international climate change policies, i.e cancel the Paris Agreement, the 2015 deal in which nearly every country put forth plans to reduce emissions of carbon dioxide to save money; labelling climate change policies as a 'Chinese hoax'.
  • Declaring that he would replace Federal Reserve Chair Janet Yellen quoting that central bank policies have created a 'false economy'.
  • Proposing to replace Obamacare with his own cheaper plan for tax-free health savings accounts (HSAs) stating that Obamacare has 'failed on cost and quality of healthcare'. 
  • Taxes will no longer be charged to single individuals earning less than $25,000 or couples earning less than $50,000 per year. How does one apply? Well simply just file a one-page form with the Internal Revenue Service (IRS) which states: "I win".

In a glance, Trump's proposed policies which portray an overall protectionism stance could arguably bring some chance of success in keeping jobs and wealth inside the United States. He has promised to increase employment via means such as spending on infrastructure - as much as US$1 trillion, and by stating that his plans for lower taxes, trade barriers and tighter immigration rules would eventually lead to stronger economic growth; a stand which seems to empower the average American more.

Delving deeper though, there will be huge shortfalls in terms of expenditure cost due to the amount of outflows his proposals carry. Trump defends this based on his view of an achievable 3.5% American economic growth which would outweigh any additional cost. Nonetheless, we think there is little to fear in this aspect as what we'd call the 'imaginary debt ceiling' can always be raised via taking on additional leverage and engaging in more aggressive money printing:

 

 

For one, the initial failure of Abenomics comes to mind when talks of such we'd say, 'overly optimistic' economic growth is spoken during in times of strong deflationary pressures in their case. However, not all is bad in view of conflicting results brewed by prolong policy; Japan posted at 2.2% economic growth rate for the third quarter of 2016 ahead of forecast, despite inflation figures continuing to remain stubbornly low. For the case of Trump, similar headwinds can be expected amidst a global cost-cutting, elite empowering, 'currency wars' framework. The larger majority of economist forecast America's growth rate to average only about 2% for the next decade. Nonetheless to be fair, we at EssenceFX believe that everything is far too soon to tell. Perhaps with his proposed policies, President Trump will be successful in spurring domestic spending to a level strong enough to match his economic growth expectation. Whatever direction it may take us, come the next half of 2017, we'd have a story to tell =) 

 

 

Trading analytics: As a result, here's what we here at Essence think could happen to the US indices, price of gold, price of oil, and the currency majors.

*Pre-November 8th, for indices, gold, oil, and currencies alike, we witnessed a strong 'risk-off' scenario as excessively indicated in the many pieces of mainstream journalism; the majority largely opining that more of a negative overall economic sentiment would follow if President Trump's takes the win. Surprisingly (or not so surprisingly) however, upon President Trump's actual win, in just a matter of hours later, markets rallied, even breaching new highs for a few of these mentioned asset classes. While mainstream journalism will now mostly give you a 'flip view' over what has happened to justify such ambiguous movement, we here at EssenceFX would like to reiterate on one of our frequent earlier mentioned main points once again: There are large 'colossal' forces at work here which already have too much firepower at their disposal. They will continue to corner the markets until they are ready to trigger a certain 'objective' in due time. We will touch more on this 'objective' soon. In the meantime, EssenceFX views that their colossal amounts of carry trade and safe haven unwinding will continue to follow in search of new avenues to channel their funds towards: Hint? Coal and infrastructure sectors. 

 

Legend: 

P1 - Price two days prior to US elections (November 6th) 

P2 - Price two days after US elections (November 10th)

L/H - Low / High during US elections day (November 8th) 

F - Forecast  (up to first half 2017; targets to be achieved by then) 


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P1: 18173 /2127        P2: 18780 / 2159        L: 17419 / 2027        F: 17400 / 2045

Bullish:
- Trump's strong conviction to increase US interest rates can potentially trigger more flows of funds into the US economy; as reflected by the parking of US treasury and foreign sovereign bond sells into American indices (short-run bullish). 

- Healthcare, financial, airline, infrastructure and energy sectos stand to benefit from Trump's policy driven incentives. 

- Potential abolishment of the Dodd-Frank Act and with it, the Volcker rule which will most certainly bring back more liquidity and added volatility to the markets. 


Bearish:
- Trump's strong conviction to increase US interest rates can potentially triggers more flow of funds back into the US economy; however leaning more towards higher yielding US treasuries once again (long-run bearish). 

- 'Foreign production' reliant counters will be impacted negatively i.e technology hardware, consumer staples, and consumer discretionary to be weighed down by increased trade barriers. 

- With the Dodd-Frank Act gone, excessive risk taking by financial institutions in a highly leveraged environment will take place once again. We think this would be 'the final colossal accumulation phase' in accordance to the zero-sum game theory before a coordinated sell down. 
 

Overall: We expect US equities to be an overall long term negative due to the imminent problem of large corporates being 'over leveraged'. This will ultimately lead to a good few facing difficulties amidst a rising interest rate scenario hence bearing an overall negative sentiment. In addition, increasing interest rates will likely flow investments into perceivably safer US treasuries.   


P1: 1282        P2: 1226        H: 1337        F: 1375

Bullish:

- Trump's proposal to impose hefty tariffs over Chinese and several other importers and his threat to place trade sanctions on them could eventually lead to price inflation levels ahead of payable yields; given a highly leveraged deadlock. EssenceFX views that a standstill will eventually trigger 'safe haven' asset demand once again as this could eventually point towards a recurring rate cut possibility. 

- Given the enormous amount of leverage, certain corporates around are bound to fail the minute our frequently mention 'colossals' significantly pull out from equity markets once interest rates start to rise. In event US economic growth and treasury yields start to stagnate, 'safe haven' asset demand will take flight once again.

 

Bearish:

- Trump's strong conviction and eventual lobby to increase US interest rates will trigger a flow of funds back into other non-safe haven asset classes as higher yields make a comeback once again.  

- Deviating a little from Trump, it really depends what these 'price setting' and gold 'trading nations' especially number 3 in this write-up decides to do in regards to 'market making'(in addition to the investopedia examples, they can also corner the market). 

Overall: We expect gold to be a long term positive due to much financial issues which are brewing in the market which have yet to fully season. The team here at EssenceFX views that these issues will start to show more significance in about half a year's time. 


 

P1: 44.09        P2: 43.08        L: 43.07        F: 29.00


Bullish:

- Trump's intent to block all oil imports from Saudi Arabia could somewhat be a boon to domestic production and demand. There is a chance we think that if harsh trade barriers come into effect, we could then see the birth of a domestically driven price market; the possibility of WTI trading at a premium over Brent. In addition to this, Trump's administration stated that they will reduce regulations and restrictions that have affected the oil and gas business (although the measures to be taken still remains rather ambiguous), which could further encourage domestic trade activity.

- The Iranian nuclear deal has allowed Iran to increase the supply of crude oil in the markets. However, Trump has repeatedly bashed the deal calling it "disastrous" with a pledge to dismantle it; we view that if Trump reinstates sanctions, many European companies would likely follow along to avoid running afoul of U.S. sanctions. This move will undoubtedly drive the prices of crude oil higher. 


Bearish:

- Trump's administration's move to reduce regulations and restrictions that have affected the oil and gas business could also be as a double edged sword which could lead to even lower crude oil prices and more so, if the Saudi's are not well cut off. 

- A strong US dollar following President Trump's win could be bad for oil prices as the commodity is traded in US dollars. In addition, a stronger US dollar also reduces the competiveness for shale oil production. 

Overall: Mainly, we expect the issue of Trump's administration potentially driving additional supply over an already past optimal supply driven market to cause overall crude oil prices to fall even lower. In addition, we view with US cutting off the Saudi's and potentially making up for any shortfalls from Canada; a vacuum like fall in demand will take place translating into lower prices (at leasr for Brent), as OPEC and Persian Gulf countries rush to fill limited demand. 


 

P1: 1.1049        P2: 1.0851        H: 1.1299        F: 1.0307 

 

Bullish:

Given the enormous amount of leverage, certain corporates around are bound to fail the minute our frequently mention 'colossals' significantly pull out from equity markets once interest rates start to rise. This would in hand lead to an overall fall in the US dollar. 

 

 Bearish:

Trump's strong conviction to increase US interest rates; potentially triggering a flow of funds back into the US economy, will gradually strengthen the US dollar. 

- Draghi has voiced out that the European Central Bank (ECB) is not going to change it's ultra-loose monetary policy any time soon. In addition, Dragi warns against watering down financial-sector regulations. Judging from their tone here, it seems that Europe is rather fearful on the correlative impact of a higher-yielding American economy. 

- Trump's election to presidency also seemed to put a nail in the coffin for the TransAtlantic Trade and Investment Partnership (TTIP). Lesser trade = lesser American demand for the Euro. European Union exports to America's only fall behind China. 

- The rise of populism as viewed in the case of Brexit as well as Trump's win could spark several other countries to project a similar stance, in the case of the European countries, namely starting with Italy, and quite possibly leading to Sweden, Denmark, Greece, The Netherlands, Hungary, France, and at worse, Germany if Merkel were to fail to retain power upon the upcomming 2017 elections. The EssenceFX view is that the Euro as a currency altogether would cease to exist if the German's leave the European Union (EU). 

- The psychological bias on the currency to fall to parity towards the US dollar (EUR/USD: 1.0000) continues to exert downward pressure on the pair.

Overall: EssenceFX largely views only one possible outcome for the EUR/USD; which is for it to head further South. This is with consideration that any potential defaults in the US are containable post interest rate hikes and minimal American growth is able to be sustained. 


 

P1: 104.45        P2: 106.64        L: 101.19        F: 121.70

Bullish:

 - The carry trade activities of large hedge funds, private insurance, and pension portfolios (GPIF) flows back into Japanese equities could cause a spike in Yen demand. The team urges you to keep track on information of such large fund flows to always be ahead of the curve when planning for a trade. 

 

Bearish:

Trump's proposal to impose hefty tariffs over Chinese and several other importers and his threat to place trade sanctions on them could eventually lead to price inflation levels ahead of payable yields; given a highly leveraged deadlock. EssenceFX views that a standstill will eventually trigger 'safe haven' asset demand once again as this could eventually point towards a recurring rate cut possibility.

- Specific to Japan, Trump's threat to pull out U.S troops from Japan unless they pay more for their upkeep, might lead Japan to spend more on 'national defence' related matters. Japan pays nearly ¥200 billion ($1.9 billion) in so-called host-nation support every year. In addition, Japan is America's second largest foreign investor which provides the country with more than 800,000 jobs. EssenceFX views that any potential escalation in tension between America and Japan could lead to additional trade barriers being imposed hence once again, spur demand for safe haven assets. 

- Given the enormous amount of leverage, certain corporates around are bound to fail the minute our frequently mention 'colossals' significantly pull out from equity markets once interest rates start to rise. In event US economic growth and treasury yields start to stagnate, 'safe haven' asset demand will take flight once again. 

Overall: With all factors weighed out, we view that the USD/JPY will likely trend higher in attempt to test the 120 level once again. The team here at EssenceFX would like to strongly emphasize that mainly upon any signs of troubles faced by American corporate's, the USD/JPY will likely fall quickly and sharply matching panic demand for safe haven assets.  

 

 

P1: 1.2397        P2: 1.2595       H: 1.2546        F: 1.1020

Bullish:

- In hopes to achieve better accuracy in regards to our GBP/USD forecast as we walk into the Trump era; we'd first like to walk you through a few updates on UK's progress in regards to triggering article 50. The final date this decision would have to be made is by March 2017. Some resistance is expected as Wales and Scotland's senior law officials will be allowed to intervene in the decision (Scotland marginally favoured a 'remain' outcome. In addition, a single campaigner for the victims of paramilitary violence in Northern Ireland has also won the right to challenge Brexit in the supreme court. Ironically, this has spurred some optimism in the GBP/USD although we do not think this would last for long. 


Bearish:

- With that in mind, Britain is set to warn NATO allies in Europe to pay their "fair share" on defence amid fears that Trump will withdraw US support if they fail to do so. For the UK, losing free trade between them and Europe and the current risk of conflicts within NATO places them in a pretty tight spot. In our view, there is little reason for a strong currency to sustain in a small island moving along a Trump instigated 'protectionism' era.  

- The psychological bias on the currency to fall to parity towards the US dollar (GBP/USD: 1.0000) continues to exert downward pressure on the pair. Just to highlight a little on how bland mainstream media initially called for only parity towards the Euro. What happens when the EUR/USD = 1; simple logic, the GBP would have to equal one too! 

Overall: EssenceFX views that it will only be a matter of time before the GBP/USD moves to test the 1.10-ish level again. Moving along, as even sentiments gathered from the Bank of England (BoE) seems to favour a weaker GBP in order to boost the country's competiveness. Hence, we view any upticks would make a good sell. Post article 50 and as global borders (mostly of developed countries) start to tighten, we at EssenceFX expect downward pressures to amplify towards the GBP/USD, making this our most anticipated forecast. 

 

 

 

 

P1: 0.9741        P2: 0.9875       L: 0.9549        F: 1.0770 

Long term neutral: 

- Firstly I think what our readers would appreciate is to have us justify why we think the USD/CHF has a unique long term neutral view. The team at Essence FX think we ought to not sugar-coat anything and just give it to our readers as it is. Regardless whether it's Trump era or not, the Swiss authorities have long been what we'd say the 'undisputed champion' for currency intervention, at least in the FX market. They once pegged the CHF to not a single country, but a bunch of countries altogether by pegging against the EUR at 1.20; a show of ammunition and implied colossal support? Nonetheless, their prowess in intervention continues further moving along the Trump era. Let us explain why.

- The Swiss authorities have long favoured a weaker currency to sustain inflation and country growth. Whether this follows doctrine of a larger propaganda or whether it's flawed economics, it does not really matter. What's pivotal is that the Swiss National Bank (SNB) have been pretty open about intervening in the FX markets as part of their monetary policy. 

- Interesting for the year, SNB have emerged as one of the largest and most active buyers of American equity as shown in the chart by Bloomberg on the left. According to calculations made by Bloomberg based on the central bank’s regulatory filing to the American Securities and Exchange Commission, holdings climbed up to $61.8 billion from $54.5 billion at the end-March 2016. This increase is timely following IMF's report on September 2016 stating that they similar to the SNB, believe that the CHF is overvalued. 

 

Overall: Well, the team has a better way of putting it but we have been told to 'tone down our language' so oh well; to conclude the explanation on our long term neutral view, what the Swiss authorities have very tactfully done is perhaps string the Americans in a situation whereby, if whatever actions take vastly affects the value of the USD/CHF against their favour, they're pretty much capable of manoeuvring American equity as a mechanism for rebalancing - talk about currency war creativity. Simple as that. The team views the Swiss to currently favour a USD/CHF value of around the 1.15 - 1.20 level; any further strength or weakness could trigger some rebalancing based on the mechanics we established above. 


 

P1: 1.3372        P2: 1.3536       H: 1.3525        F: 1.2970

Bullish:

 - If large fallouts take place between US and Canada, Trump will surely not hesitate to impose the same rhetoric over the Canadians as he did to the Mexicans. Therefore like how the Peso plunnged to an all time low upon declaration of Trump's win, the same degree of negativity can be expected to lead towards USD/CAD strenght.  

Bearish:

Given the enormous amount of leverage, certain corporates around are bound to fail the minute our frequently mention 'colossals' significantly pull out from equity markets once interest rates start to rise. This would in hand lead to an overall fall in the US dollar. 

 - Trump's strong protectionism rhetoric as interpreted by most mainstream media at least in the case of Canada we think is fallacious, period. Logically, with $2.4 billion worth of goods and services traded between Canada and the U.S. per day, and with Trump somewhat taking a more stern stance on Mexico, an alteration to the trade agreement between US and Canada would instead, suffocate the American economy. Therefore, since both Mexico and Canada somewhat ship similar exports to the US, Essence FX views that instead of President Trump imposing more barriers; we think he'd make 'the charger' out of Canada by increasing economic interdependence instead. Therefore given assured increased trade between the US and Canada, EssenceFX views this to gradually strengthen the Canadian dollar. As quoted by Trump to CBC's Meagan Fitzpatrick: "I love Canada" and unlike his plans for Mexico, he stated: "I wouldn't build a wall on the border." Trump's talks of imposing a 35%  tariff on Mexican imports and punishing U.S. companies that move there compared to no similar mention for Canada. This somewhat helps attest our views.  

- Jokes aside, and we seriously mean this although we know some of you might not take this seriously, the Canadian immigration website quite possibly has not crashed for the first and last time. Although on a much smaller scale, the movement of funds and smart money into Canada coupled with the openness of the Canadian government to accept these individuals in, will translate into Canadian dollar strenght if the magnitute grows. 

- Trump needs Canadian oil. EssenceFX thinks that the former President Obama blocked, Keystone XL pipeline project is back in play. Plans by president-elect Donald Trump to approve KXL we view is a move to make up for the upcoming oil loss as result of backing off OPEC imports. Ultimately, the decision of Trump wanting to forever collect 25% out of the deals profits comparative to the confirmed benefits of increased trade and furthermore, increased oil trade by suffocating the Saudi's would be for the Canadians to weight out. Combined, Keystone XL, the TransMountain expansion and Energy East would have the capacity to move more than 2.4 million barrels of oil a day. In addition, the pipelines could also pick up conventional oil production along the way as well as shift oil currently moving on trains if space was available. If the Keystone XL pipeline deal goes through, we eventually see this translating towards a weaker USD/CAD in time.  

- Trump's friendly rhetoric towards Canada comes at a price. 72% of Canadian exports and 80% of Mexican exports head to the US. However, oil makes about 19% of Canadian compared to only 6% of Mexican exports. Does it now give a clearer picture on why there is a tariff to be imposed on Mexico but none for Canada? Trump does not need to impose a tariff, given how shale has somewhat made US an oil superpower. The shale boom allows for some political influence over the commodity. Trump's plans to scrap carbon reduction initiatives will certainly rub off on Canada in time as the countries have integrated energy markets. Justin Trudeau remarked that  he would work with U.S. President Donald Trump 'in a positive way.' In time, we view that his decisions will largely be dictated by Trump in sustaining Canada's economic interest; such interdependence to be supportive of the Canadian dollar.   

 

Overall: 

EssenceFX views the USD/CAD to gradually trend lower as economic interdependence grows between the two countries as US scales off economic interdependence with the others. Essence FX believes that the markets will once again be introduced to the USD/CAD 1.2-ish levels once again before the end of the first half of next year. 


 

P1: 0.7717        P2: 0.7540       H: 0.7772        F: 0.9370

Post Trump, the main question we at EssenceFX have been asking ourselves is how situational outcome ‘x’ would weight over situational outcome ‘y’. Prior to that, let us set something straight. As far as the Australians are concerned, what we have here is a classic romance of a three kingdoms scenario; let us move on to define these situational outcomes. Economic interdependence between Australia and China, and China and the United States is far too great that any barriers imposed by the Americans on the Chinese would most likely negatively affect Australian exports. Therefore:

Bullish:

Trump’s push to boost American infrastructure spending will eventually translate into a boon for Australian Iron ore. In addition, China’s long standing investor class interest in Australian commodity betting will also fuel Australian dollar demand for the metal rich country. We view a boost in Australian commodity demand to ultimately translate into a stronger AUD/USD given these scenarios.

 

Bearish:

Trump’s push for the imposition of more trade barriers between the U.S and China, accusing them of dumping their goods on American soil and manipulating their currency at the cost of American jobs quite strongly suggest his sentiment over the Chinese. Therefore as tensions heighten between these two economic superpowers, Chinese exports to the Americans will gradually fall over time. EssenceFX views this to translate into lower commodity exports from Australia to China and hence, lowering the demand and the price of the AUD/USD over time.

 

Overall:

Arriving towards our conclusion, we believe consistency in analysis is necessary. The research team at EssenceFX have long viewed a ‘shift to US dollar parity’ to eventually take place for all or at least most currency majors as a listed agenda for colossal market manipulation. Therefore, we think Trump’s candidacy will likely boost the AUD/USD further due to increased American commodity demand and deeper American reliance on the Australians, as they break further away from China moving forward.


 

P1: 0.7337        P2: 0.7105       H: 0.7393        F: 0.8470

The New Zealanders is perhaps the least affected bunch amongst the currency majors to be affected in any way in regards to Trump's recent candicacy. That said, the NZD/USD has long shown a somewhat direct correlative relationship with the AUD/USD. The factors which stand to drive the AUD/USD lower or higher will likely affect the NZD as well in a less direct manner. Both Australia and the New Zealand are somewhat regarded as immigration friendly countries. Following Trump's official announcement as the president elect, web traffic from the United States to the New Zealand government websites that deal with immigration skyrocketed; a point which we at EssenceFX find to be a little ironic given that Trump's rhetoric towards the Russians is far more positive in comparison to Hilary's. 

Overall:

Similar to the AUD/USD, upon arriving towards our conclusion, we believe consistency in analysis is necessary. The research team at EssenceFX have long viewed a ‘shift to US dollar parity’ to eventually take place for all or at least most currency majors as a listed agenda for colossal market manipulation. Therefore, we think Trump’s candidacy will likely boost the NZD/USD further as it trails the increase in the AUD/USD moving forward. 


Welcome President Trump.

As mainstream media continues to condition an image for the most of us to stereotype, in our resolve to provide our readers (and the world) with genuine, unbiased, people-empowering reading materials; EssenceFX would like to invite you to watch this video to smooth out any mainstream media led preconditioned biasness which you may have been holding on to for quite a while now:

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