Anxiety about the new US tax bill and quiet markets before holiday
Anxiety over the US tax bill, expected to be done and dusted by week’s end hit the markets with differing results. The Dollar and Treasuries fell while yields climbed and Wall Street stocks soared to record highs.
The yield on the US Ten Year note climbed 4 basis points to 2.39%. Germany’s Ten Year Bund yield ended flat at 0.30%.
Outlook: The stock and treasury markets are all excited and optimistic about US tax cuts.Forex markets are more skeptical and apathetic. The disconnect is the result of the participants themselves as well as thinner market conditions. Equity investors and traders believe that corporate tax cuts will push through and benefit US companies. Forex traders, normally a skeptical bunch, don’t believe the build-up. How much of the hype is already priced into the markets?
There are still events and economic data releases ahead. The Bank of Japan and Bank of Thailand have their policy meetings later this week.
Trading View: The Dollar caught a bid on Friday, reversed it yesterday and starts this morning on with an offered tone. Talk of year-end demand lifted the Dollar on Friday. This happens every Christmas period and is often fully discounted.
Last night a four basis point rise in the Ten year US bond yield market, failed to boost the Dollar.
Yes, this is Christmas. Liquidity is thinning. The Euro traded in a 100 point range against the US Dollar while the jumpy British Pound had 120 points at least. The UK is preparing for the next round of Brexit talks with the EU and this lifted Sterling?
The Japanese Yen was little-changed. This is because the BOJ meets on Thursday. The Australian, Canadian and New Zealand Dollar’s were all steady… for now. In the Emerging Market space, specific South African political news saw a 2.5% lift in the South African Rand.
It’s always difficult to read too much into December markets. Thin market liquidity means that a few large orders can move specific currencies.
Watch the price action, remember the market’s positioning and keep your levels fresh in your coconut. For now, the Dollar is offered.
USD/DXY – the Dollar Index slipped another 0.32% lower to 93.70 at the close. The overnight low was 93.38. Immediate support can be found at 93.50 and then 93.40. The strong support level is 93.20 and that should hold. Meantime, immediate resistance lies at 93.90/94.00. The resistance at 94.20 and then 94.50 is formidable.
EUR/USD – rallied all the way to 1.1834 before falling to settle at 1.1780, still higher than yesterday’s 1.1752. The overnight low was 1.17376 and the support at 1.1730/40 is strong. Immediate support can be found at 1.1750. Immediate resistance lies at 1.1800 and then 1.1830. Yesterday Euro Zone CPI was flat on expectations. Today sees German IFO Business Climate data which has been steadily climbing since July. Let’s not forget that speculative Euro long bets are the largest in over ten years. Likely range today 1.1730-1.1790. Look to sell rallies.
GBP/USD – bounced off the 1.3300/10 level well once again. The overnight low was 1.33076. The Pound was looking heavy from the outset in Asia yesterday. UK Prime Minister Theresa May said that the UK was preparing for a smooth and orderly Brexit while UK Manufacturing Orders stayed at 30-year highs. This lifted Sterling 1.34185 overnight before settling at 1.3385, up 0.6% from yesterday. GBP/USD has immediate resistance at 1.3400 and then at 1.3420. The level between 1.3420-30 is strong. Immediate support lies at 1.3350 and 1.3330. The 1.3300 level is strong and has held so far. Likely range 1.3330-1.3430. Look to sell rallies.
USD/JPY – had a relatively quiet night probably more confused than anything else. Normally a 4 basis point climb in the US Ten Year yield (Japanese Ten year yield was flat at 0.03%) would see a strong rally in USD/JPY. As well as a rise in stock prices. The BOJ has its policy meeting this Thursday and traders are hesitant to push the currency too much either way. Immediate resistance lies at 112.80/90, last night’s high was 112.831. USD/JPY has immediate support at 112.30/40. The BOJ is not in a hurry to tighten in any meaningful way in the near future. However, the Japanese economy is doing reasonably well. Likely range today 112.35-112.85. Prefer to sell any rallies.
AUD/USD – held the support levels well buoyed by a weaker US Dollar and higher metal prices. Copper led base metal prices higher. The RBA releases the minutes of it’s the latest meeting. The overnight high for the Aussie was 0.76777 which is basically today’s immediate resistance. Strong resistance lies at 0.7700 and 0.7720. Immediate support can be found at 0.7640 and then 0.7620, which should be strong. Likely range today 0.7640-0.7790. The wider range seems to be 0.7620-0.7720. Just trade the range shag.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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