A Gut Punch to ‘Trump Trade’ As Bank Stocks and USD Get Hammered……

The honeymoon is over on the Trump presidency. This is the official word being bandied about by analysts, economists, and traders on Wall Street. Any excitement around Trump’s election has all but evaporated after the colossal failure of the American Healthcare Act on the house floor.

That the GOP was unable to muster enough support from within its own ranks to pass the repeal & replace for Obamacare did little to bolster confidence in Trump’s ability as president. The firebrand US president now realizes just how intransigent Washington DC can be, as all 3 branches of government are at an impasse.

The GOP front-runner may well have the ability to sign executive orders from the Oval Office, but his agenda is mired in bureaucratic red tape in the House and the Senate. Even Trump’s judicial appointments are facing heavy scrutiny from lawmakers, and his first 100 days are being hailed as the worst ever for a new president.

Concern growing about economic prospects…

With that said, there have been dire economic consequences based on his failures to date. Trump failed to pass an immigration ban, and he failed to provide a suitable replacement for Obamacare. Now, traders, investors and speculators are taking a short position on the USD, on Trump trade, and on any prospects for reflation expectations in the US economy.

One of the most important barometers of the strength or weakness of the USD is the US dollar index. The index is currently trading at 99.01, down from its previous close of 99.38 on Friday. The index has a 52-week high of 103.82, and a 52-week a low of 91.92. Presently, it is trending strongly bearish, and the USD has plunged to its lowest level in 4 months.

That the healthcare bill was pulled before a vote could even take place is testament to the lack of support it has among Democrats and Republicans. Investors are realizing that Trump severely underestimated his abilities to lead the country, given his vague policy agenda which is typically whitewashed with inanity like, ‘It’ll be great!’ or ‘Make America Great Again.’

But it is the economic consequences for traders that are most important here. On Monday, 27 March 2017, the US dollar index hit its lowest level in 4 months. The USD was down against 6 major rivals, trading as low as 98.86, before recovering slightly. Leading the rout was the USD/JPY currency pair which is now down 0.87% at 110.14. The EUR/USD pair rose slightly to trade at 1.0902, up from 1.0799. And, the GBP/USD pair was revised sharply higher from 1.2490 to 1.2604. All these movements indicate a weakening of the USD, and a strengthening of its trading rivals.

As traders see Trump weakness, so their faith in his reflation plans (fiscal expenditure, tax cuts, deregulation etc.) loses traction. Additionally, dollar weakness and an economic slowdown could also limit the pace and scope of Fed rate hikes. Recall that the Fed recently increased interest rates by 25-basis points on March 15, 2017. The federal funds rate is now 1%. It is against this backdrop of pessimism that we look at opportunities for binary options traders.

Trading opportunity #1 – GBP/USD pair trending bearish

The GBP/USD currency pair is trading up 0.87% or $0.011 at 1.2577. The US dollar index has been plunging ever since Trump started taking heat on the passage of his immigration executive order, and the recent failure of his repeal and replace plan for Obamacare. The USD has faced increasing scrutiny from speculators, on the back of doubts about reflation in the US. As such, many currencies trading against the US dollar have strengthened while the USD has weakened. From the above graphic, binary options traders will see that the GBP/USD pair is rapidly marching towards its 200-day moving average of 1.272, and it has already surpassed its 50-day moving average of 1.240. These movements are notable for the GBP, given that it is perceived as a bearish long-term currency with Brexit woes. Nonetheless, the short-term outlook for the GBP/USD pair remains bullish.

Trading opportunity #2 – Gold gains as dollar retreats

The gold price has soared in recent days, on the back of dollar weakness and increased uncertainty. This uncertainty is evident across the board, with a plunging DXY, and reversed sentiment on Wall Street. In other words, binary options traders can clearly spot the warning signs for equities markets when a risk-off approach is adopted, bank stocks and financial stocks are plunging, and the US dollar is enduring its worst performance in months. This is evident in the rising price of gold which is now trading at $1254.78 per ounce, or $40,342.11 per kilogram.

As a binary options trader, the short-term price movements on gold are bullish and call options are dominating the scene. While gold has enjoyed a respite in recent days, it remains very much on the back foot over the past 6 months. Since September 2016, gold has suffered losses of 6.83% or $91.50 per ounce, and it’s 30-day performance is slightly improved at -0.69% or $8.70 per ounce. The failure of the American Healthcare Act has pushed the gold price to a monthly high. Unfortunately for Trump, that was an indictment of his ability to convert campaign promises into reality. As such, gold is on the rise.

Trading opportunity #3 – Bank of America Corporation takes a hit

Bank of America Corporation (BAC) stock has been trending bearish in March. This is due to a weakening of the USD, and loss of confidence in Trump’s ability to steer the economy towards deregulation, decreased taxation and an effective repeal and replace for Obamacare. Bank stocks have been particularly hard hit in recent weeks, and this is evident in the stock price. Currently, BAC stock is trading at $22.69 per share, beneath its 50-day moving average of $23.84, but markedly higher than its 200-day moving average of $18.61. This can be interpreted as a good buy opportunity for the bank. Besides, BAC stock is relatively cheap, and it is possible that deregulation may eventually come to pass.

Despite the short-term weakness, there are many reasons to be excited about BAC stock. These include the following: BAC shares have appreciated by more than 500% since 2009. Austerity measures at the bank have increased profitability big-league, and monetary tightening policies at the Fed are going to increase profitability as the year progresses. BAC is also moving with the times, with strong growth in mobile banking, and digital sales represent 20% of total sales. Another issue that will have traders and shareholders plenty relieved is the issue of fines imposed upon the bank since 2009. Approximately 30% of the $160 billion in fines have been repaid – this significantly reduces the pressure on the stock price. More importantly, the bank’s latest quarterly earnings figures indicate that deposits increased to $1.26 trillion.

Trading opportunity #4 – FTSE 100 index trending bearish

The GBP is on a roll. While this is good for importers – they can get more bang for their buck – it’s bad for exporters and the FTSE 100 index. The FTSE 100 index is dominated by overseas-based earnings. This means that any revenue streams generated outside the UK are worth less in the UK when the GBP is strong. This is precisely what we have been seeing over the past several days. The FTSE 100 index is currently trading around 7281.87, down 0.75% or 54.95 points. It is still up significantly over the past 1 year, gaining 19.25%. However, as long as GBP strength persists, we will see the FTSE 100 index trending bearish. This is a clear sign for binary options traders to place put options on this index.