Frantic Friday?
Senate Republican tax cut proposals unnerved markets
It was a tumultuous Thursday as Washington smoke screens and fades have traders running every which way but up. But the overriding concern is that GOP dissent is running high creating a high level of angst that this vital piece of legislation will even pass a vote.
The Republican plan was to implement a 20% corporate tax cut after a one-year delay. Investors had a massive anxiety attack sending the Dow down 130 points, as currency traders relentlessly hammered USDJPY near the key 113 tipping point
There’s a definite risk-off tone in currency markets but trying to decipher if investors hate the plan or are merely booking profits will be the crucial determinant. All eyes are on equity index futures this morning, after USDJPY coming within a stone through of 113.00 overnight, it’s going to be one of those “edges of the seat” days as dealers continue to digest Washington headlines. Downside USDJPY risk could accelerate hugely on a break of critical 113 support line as this will likely trigger a wave of JPY cross-selling
The Australian Dollar
The RBA lowered their inflation forecast through 2019 all but serving the Aussie dollar up on a platter.Although this was the likely outcome due to the change in CPI measurement methodology, we could see a decent sell-off on the Aussie eventually materialize more so against the NZD given the divergent monetary policy rhetoric of late between the RBNZ and RBA. Keep in mind AUDUSD trade remains exceptionally sticky these days so best to express any negative bias through the crosses.
The US Dollar
We knew this was going to be a challenging week for the greenback given the sparse economic diary and we should expect the dollar to struggle in the weekend as US political crowing will hang like an anvil around the dollar neck near term.
The Japanese Yen
We’re holding the bottom end of the near term 113 -114.50 range but USDJPY will be at the complete mercy of tax reform rhetoric. Ultimately I expect cooler heads to prevail onUS tax reform and view the current market sell-off as a correction.Over the long haul, the overtly dovish BoJ will continue to weaken JPY.
