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Trump's Speech and Tariffs Have Slammed the Dollar - Here's What to Do About It
by Brandon Chapman, CMT |
The US dollar today is sinking in a sea of red against the major currencies; the benchmark US Dollar Index (DXY) is down over 1% this morning. |
The key driver for the dollar is the imposition of tariffs and President Trump doubled down during his speech last night. |
Here are five key economic points Trump made in his address: |
Tax Cuts: Trump called for the elimination of taxes on Social Security benefits, tips, and overtime pay. He also proposed a tax break on auto loan interest for buying American-made cars. Tariffs: Trump defended his policy of imposing tariffs on U.S. trading partners, including a 25% tariff on products from Canada and Mexico, and a 20% tariff on products from China. Government Spending: Trump highlighted his administration's efforts to cut government spending, including firing thousands of federal workers and reducing the size of government agencies. Inflation: Trump blamed the country's economic problems, including inflation, on former President Joe Biden. Economic Revival: Trump promised an economic revival, stating that his administration's policies would create jobs and boost the economy.
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Walking a Policy Tightrope |
There are major policy changes before us, with significant impacts. To get there - to balance all those impacts - we've got to walk a rather narrow path. |
Clearly, the administration wants a weaker dollar - but not too weak. They want bond yields lower but want to transition to a production- and export-based economy. We want the dollar to continue being the world's reserve currency while diminishing the number of imports. |
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These are seemingly contradictory. The dollar's status as a global reserve currency is currently maintained because we borrow a lot from the world. We send them dollars and they send us goods. If we take in fewer imports, that means that there will be fewer dollars in reserve held abroad. This prompts a question: What currency would governments want to hold as opposed to US dollars? Maybe this results in a transition to gold or bitcoin. |
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If foreign governments are buying our debt with their dollar reserves, then how are we going to see yields move materially lower for US Treasuries? This may come down to inflation expectations. Many are questioning this possibility because of tariffs being imposed. They say tariffs are a tax on Americans and will result in higher prices. Trump's retort is that any inflation is a one-time adjustment, but also that it doesn't necessarily result in higher prices. Even Rand Paul was questioning the impact of tariffs on inflation: |
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I would argue that a tariff is a shared tax between the producer, the importer, and the end consumer. How much of the burden will be shared by each will depend on the level of demand and competition. Producers will likely need to bear some of the brunt through lower prices if consumers won't pay the higher price. The big part of the imposition of tariffs is the need to lower other taxes - also a big part of the announcement last night. Going from internal to external revenue generation. I understand Paul's comments and it may be important to have some detractors to hold the administration's feet to the fire on cutting the internal revenue generation! |
Here's the Bottom Line |
The difficulty of the policy shift is immense! However, the announcements, thus far, seem to strike the balance needed. That doesn't mean it will end well and the desire to see Treasury bond yields fall will be difficult without some degree of economic weakness. |
Today's selling in the euro/dollar pair is alarming, but will most impact countries in the Eurozone that require a weaker currency for exports. While the German DAX index and other European indices are testing highs, it may be temporary and the institution of tariffs will diminish their economic output in the medium- to long-term. |
For now, foreign stocks are getting a bounce, but if the global economy begins to slide, there is structural demand for US dollars that may see that initial strength weaken dramatically. |
First Mover Option Pulse |
We're looking for a first-mover advantage by identifying option pulses or prints that could impact the stock price. For today, I wanted to do a deeper dive on one option pulse. |
Celsius Holdings Inc. (CELH) |
Many investors have been waiting to see CELH find some significant support. There was an attempt to breakout on October 10, 2024, but the rally faded and eventually ended on the earnings report on November 6, 2024. The price ended up falling nearly $15 from the high following October's breakout, but yesterday's option pulse means it may be time to look again at CELH. |
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The buyers stepping into buying the calls helps provide a bullish direction and a potential near-term target of $30. |
Now, back to the earnings report on February 20, 2025. The report produced a very different result as the price rallied nearly $8 following the news. |
When evaluating earnings I use three criteria: |
Beat analyst estimates for earnings and revenues Raise future guidance for earnings and revenues Stock price rises on news
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Here's a summary of the latest CELH earnings report regarding analyst estimates: |
Earnings Per Share (EPS): Celsius Holdings (CELH) reported an EPS of $0.14 for Q4 2024, which beat the consensus estimate of $0.11 by $0.03. Revenue: The company reported quarterly revenue of $332.20 million, surpassing analysts' expectations of $326.07 million
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Celsius Holdings (CELH) provided guidance that was generally in line with or slightly above current analyst estimates: |
Earnings Per Share (EPS): CELH's guidance for the next quarter is an EPS of $0.20, which is slightly below the current analyst estimate of $0.21. Revenue: The company did not provide specific revenue guidance, but analysts expect revenue to continue growing, with a consensus estimate of $332.20 million for the next quarter. Future EPS Growth: Analysts expect CELH's earnings to grow by 21.35% next year, with EPS increasing from $0.89 to $1.08 per share. Analyst Ratings: The stock has received positive ratings from analysts, with a consensus of "Buy" or "Strong Buy
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For the most part, CELH met the criteria of beating and exceeding, but didn't provide a convincing level of detail with revenues. However, the price reacted in such a way to suggest the market interprets the news positively. |
Since the earnings gap, the price has fallen back to nearly $24 but has been settling near the 10-day EMA and the 50-day simple moving average. For my Keltner Swing study set, it may be setting up for its next move. |
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While the price is setting up, the idea is to see the price close above the 10-day EMA within the Keltner and above the 50-day SMA on above average volume. At that point, the stock could be purchased with a stop at the lower Keltner channel, currently at $23.17. The near-term target is $40. |
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