Trump Looking To Manipulate Currency

| About: SPDR S&P (SPY)
This article is now exclusive for PRO subscribers.


A strong dollar has been synonymous with strong US markets.

Breaking that relationship could work, but it will be a change and markets don't like change and uncertainty.

If the dollar is talked or pushed lower, other countries could retaliate causing a currency war, which would be destabilizing and negative for markets.

President-elect Donald Trump just slammed the dollar (NYSEARCA:UUP). The world has counted on a strong dollar as a safe haven, helping the U.S. bond and stock markets. A change of this perception would be a risk to the equity markets (NYSEARCA:SPY).

"Too Strong"

Trump told The Wall Street Journal:

"Our dollar is too strong."

To date, Trump has said that China is a currency manipulator, apparently referring to the fact that they keep lowering the yuan to the dollar.

This time, PE Trump focused on the other side of the dollar:yuan pair. Instead of saying the yuan is too weak, he said the dollar is too strong. That has different implications.

If a country's leader tries to talk down their own currency, it can be a warning sign of plans to step in and weaken the currency.

In fact, that is what Trump hinted to. The WSJ article was quoted as saying:

Mr. Trump said the U.S. might need to "get the dollar down."

It's clear Trump has complained that China was manipulating their own currency. But here, Trump threatens that the U.S. could take retaliatory measures. His quote above calls for pushing back directly in currency markets.

The WSJ article went on to say:

"The president does have the power to buy and sell foreign currency-called foreign-exchange intervention-to change the dollar's value, and can even call on the Fed to use its own resources in that effort. Such intervention is particularly powerful when used in concert with other nations. That is why presidential rhetoric can temporarily influence the dollar's value."

Can you say, "currency war."

Currency War Risk

If Trump encourages actions that materially change the path of the dollar, other countries could retaliate. China has already shot back in the war of words with Trump.

If the U.S. takes action to weaken its currency, other countries will respond. Currency wars hurt multi-national company earnings and have proven to be destabilizing to markets. Such comments are an initial step to such risks.

Dollar And Markets Go Together

Source: St Louis Fed

Above is the relationship of the dollar (in blue) versus markets (in red). The chart above shows annual returns dating back to 1975.

You can see that in most years, markets and the dollar moved together. They both probably fed on each other exchanging leadership over time.

A strong dollar encourages investment confidence in the U.S., driving markets higher.

If the next President is against a strong dollar, it pulls a historic support from markets.

Surprise Comments

Markets are starting to get used to surprise Trump comments. Since his victory, the president-elect has quickly moved defense stocks, drug stocks, oil, stock and bond markets up and down. The moves come after surprise comments from a person with power. That said, he has not even taken power yet.

The surprise nature of these comments, coming consistently, could erode market confidence. The reason is some level of discount needs to get priced in if there is a constant element of surprise, change and unknown.


The dollar is now in Trump's crosshairs. A move to a weaker dollar could have market implications. Historically, a strong dollar means a strong market. The move to "get the dollar down" would have far-reaching market risk implications.

PRO TRADER on Seeking Alpha

Thanks for reading our report. We hope you enjoyed it. If you did, you may want to check out our premium Seeking Alpha service.

Every morning and throughout the trading day, we offer our members unique access to our insight on the markets based on a wealth of experience working with multi-billion dollar hedge funds and institutions in PM, analyst and trader roles. We provide weekly and daily market models and analysis that can help you know what to expect next in stocks, S&P 500, gold, oil, bonds and more. We're also very proud of the interaction with our members which can help you harness your own unique strengths to become a great investor or trader. There is no secret formula in this business. Discover your own abilities.

Click here for a free trial of Elazar's Pro Trader on Seeking Alpha.

If you liked our work scroll to the top and click "Follow."


ETFs reported by Elazar Advisors, LLC are guided by our weekly and monthly methodologies. We have a daily overlay which changes more frequently which is reported to our premium members and could differ from the above report. Portions of this article may have been issued in advance to premium members. All investments have many risks and can lose principal in the short and long term. This article is for information purposes only. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC and their related parties harmless. Any trading strategy can lose money and any investor should understand the risks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.