Why waste money on expensive reports and professional market analyses when one of the most accurate indicators of the direction of the foreign-exchange market is free and available to anyone? We're talking about U.S. President Donald Trump's tweets, which no currency trader should ignore because they're veritable market movers.
We've suspected that before, but now Deutsche Bank confirmed in a report which examined how Trump's tweets influence the U.S. dollar/Japanese yen currency pair, since the yen is considered the most responsive currency to U.S. policy changes. The analysis revealed that in seven out of 70 tweets that caused the USD/JPY pair to move at least 25 pips, the moves only reversed after many hours. "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," Deutsche Bank's Oliver Harvey wrote in the report.
Trump's penchant for tweeting has caused transaction volumes to soar in some cases, although Harvey says that the impact of his tweets on the forex market is pretty low in general, potentially because "the market also appears to be paying less attention." If Trump and his administration want to leave a greater footprint on markets, he should make his remarks public via traditional media, like he did almost a month ago when he caused the dollar to plunge versus the yen after telling the Wall Street Journal that the greenback was too strong.
The point is that for investors nowadays, Trump's Twitter feed is a must-have tool, but Harvey warns that "there seems little prospect of building a systematic strategy around them, except for the observation that sizeable moves seem worth following," so don't expect it to be easy to make money on the back of Trump's tweets.