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Donald’s dollar: How to trade FX around Trump tweets (or try to)

Currencies traders and investors can’t ignore tweets from Donald Trump, says Deutsche Bank. But they can’t easily make money out of them either.

Oliver Harvey, an analyst at the German bank in London, explains in a new note that the president’s Twitter feed is “a must-have tool for investors”. (Bad news for anyone whose employers still forbid access to the site.)

The dollar’s moves against the Japanese yen are in many ways the best gauge for the market impact of Trumpian tweets, as this is the currency pair most sensitive to inflation and interest rate expectations, and also to geopolitical risks, through the yen’s tendency to climb in times of stress.

Looking at moves in the pair, Mr Harvey calculated that relatively few policy-related tweets really move the dial. Moves in excess of 10 pips (for example, from Y110.10 to Y110.20) are an exception, happening in only one in three cases. Out of 70 relevant tweets, moves over 25 pips have happened only seven times, and often when boosted by other factors such as data releases.

“The market appears to be paying less attention,” Mr Harvey says.

But ignoring the tweets can be costly.

On the seven occasions when a Trump tweet has seen a more than 25 pip move in the dollar against the yen over the next hour, it has also paid to follow rather than fade. Of those tweets, all have seen moves extend over a four hour period and in none have moves been reversed over a 12 hour period.

The bottom line is that while Trump tweets should continue to be highly relevant for the FX market, there seems little prospect of building a systematic strategy around them, except for the observation that sizeable moves seem worth following.