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The tweet heard ‘round the world

Will Twitter be the new Bloomberg terminal?

Social media has become something even professional traders need to pay attention to. Social media has become something even professional traders need to pay attention to.

It is not like we are unfamiliar with our new President sending out tweets at all hours of the day and night. In this instance, though, his comment was to The Wall Street Journal and an immediate WSJ tweet about it is what caused an almost instantaneous move in global markets.

“… The US Dollar was already too strong” was the comment, and by the looks of the currency markets they are concerned there is more to come .

Stage 1: post-election period

When the evening of Nov. 8, 2016, came to a close we had a new President-elect and for certain a new way of governing. The currency markets were quick on their feet to interpret all of this and the decision was that this was all good for the U.S. Dollar.

After all, Trump’s campaign rhetoric was focused on a U.S. protectionist policy; significant tariffs on exports to the U.S.; and tearing up of the NAFTA agreement. All of that could mean the U.S. economy should be growing at faster pace, that U.S. interest rates would rise and that in turn should equate to a stronger U.S. Dollar and weaker currencies around the globe.

From that day until Jan. 16, 2017, that all held true. As can be seen in the first graph below, the Dollar rallied versus both developed market and emerging currencies.

The Mexican Peso (1) took the brunt of the Dollar rally and dropped by 15%. Of course, if we tear up NAFTA and put up a wall, their economy will suffer.

It was not just the Peso that dropped. The Yen (2), Euro (3), and British Pound (4) also weakened. (China’s Yuan saw much less impact, by comparison.) Those three currencies have interest rates close to zero. If the U.S. economy grows at faster pace, rates will rise and their currencies should weaken.

Forex1

Day of the tweet

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Now, let’s turn our attention to the second graph below.

In one comment and one tweet we saw all those same currencies—as well as the Yuan—rally and the Dollar drop. We saw interest rates that had moved significantly higher in the two months since the election (5) drop quickly.

Forex2

Lesson of this episode

This will be the Trump presidency. The global markets will be following social media regularly and over time the currency market will separate out jawboning from reality.

Jason Leinwand

Jason Leinwand is the founder and CEO of FirstLine FX, a foreign currency advisory firm. He has nearly 30 years of experience as a trader and global markets strategist in the currency markets. FirstLine FX was founded with the express purpose of providing independent, strategic advice on the foreign exchange markets. Prior to founding FirstLine, Jason held various senior positons in the FX markets including nine years as head of FX for MetLife. He can be reached at Jason@FirstLineFX.com

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