The Trump Inauguration Trade – A Traders Guide

As President-elect Donald Trump prepares for his inauguration on January 20, 2025, investors are keenly watching the financial markets for potential opportunities. Trump's policies and unpredictable nature could create significant market movements, offering various trading opportunities.

1. Foreign Exchange (FX)
Trump has threatened tariffs on most nations but specifically mentioned Canada, Mexico and China. He has planned to impose 25% tariffs on Mexico and Canada until they control the flow of illegal drugs and immigrants into the US. China was also implicated when he proposed an additional 10% tariffs on imports in addition to the current tariffs imposed on them across various sectors.

Although USDMXN and USDCAD have gained 3.6% and 4.2% respectively since the November 5th election day, these moves are not at all significant if a 25% tariff is implemented for all their imports into the US. A potential move upwards with an asymmetrical pay-off is likely if Trump comes in strong on day 1. As for USDCNH, China has been part of the tariff picture since Trump’s first term in 2016 and as such the market has priced in these tariffs to a much larger degree.

USDCAD
Key resistance :1.4450, Key support :1.4330

USDMXN
Ascending triangle pattern with key resistance at 20.85 with trendline support at 20.4 - 20.5

2. Treasuries
Since election day on November 5 2024, 10-year yields have risen by as much as 55 basis points due to potential tariffs and increased government spending but have since retraced due to recent weaker US CPI data. The 2-year to 10-year spread has turned positive since September last year and is currently at 37 basis points. However, given Trump's opinion that rates are excessively high, there might be pressure for rate cuts, despite the Fed's theoretical independence as a central bank. If more rate cuts occur, the shorter term 2-year yield would likely remain anchored, while 10-year yields could rise further due to anticipated growth and inflation in the future, resulting in a steepening of the yield curve.

 Micro 10y yield (10YG5)

3. Commodities
Gold: Concerns about inflation could rise if Trump's policies result in higher tariffs and increased costs, making gold more appealing to investors as a hedge against inflation. Additionally, Trump has criticized the Federal Reserve's interest rate levels, suggesting they are too high, and if his administration pressures the Fed to maintain lower rates, it could further support gold prices by reducing the opportunity cost of holding non-yielding assets. Furthermore, Trump's foreign policy decisions, particularly regarding trade with China and other geopolitical issues, could heighten global tensions, prompting investors to turn to gold as a protective measure amidst the uncertainty.

Gold (XAUUSD)

Uptrend channel intact with immediate resistance at $2,725.

Oil Sector: Trump's administration has consistently supported the energy sector, advocating for increased domestic oil production and reduced regulations. Expected policies include expanding drilling rights and easing environmental restrictions, benefiting the oil and gas industry. Additionally, Trump's foreign policy decisions, particularly concerning energy independence and trade, could impact global oil markets by promoting US energy exports and reducing reliance on foreign oil. Some oil sector ETFs include XLE:arcx and XOP:arcx.