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There are few things a market likes more than a tax cut but that's what was dangled on Wednesday and the US dollar bulls bit hard. USD was the top performer again while the New Zealand dollar and euro lagged. Interestingly, US stocks were muted. Australian employment and Chinese industrial production are due up next. A new USD trade has been posted ahead of a busy 2 days of BoE decision (MPC minutes, US CPI and retail sales).

The great promise of the Republican win 10 months ago was a tax cut, but the market lost faith after the Obamacare repeal failure general disarray the White House. The dollar suffered as a result.

Hope wasn't lost. Mnuchin and Cohn have been quietly working on the details and now the effort has begun. Trump's across-the-aisle efforts to raise the debt ceiling have some thinking the equation has changed. He will meet with top Democrats for dinner later today where he will talk more about tax reform. The aim is to have a plan ready for September 25 and a report today said Trump was insistent on a 15% corporate tax rate.

That talk kept the US dollar momentum going as it rose to 110.69 against the yen and sent EUR/USD below 1.1900. Along with soft UK wage data, the strong dollar also helped to retrace all the cable gains from Tuesday. At the moment, a tax break is the best hope for a sustained dollar rebound. It will be a treacherous path but we will be watching closely.

On the near-term calendar is a speech from the RBA's Debelle at 2315 GMT but the main event comes at 0130 GMT with Australian jobs for August. The market isn't sure which way the RBA is going to go but a beat on the +20.0K would make it easier for the RBA to embrace a hawkish bias.

Continued strong signs from China would also be welcome. August industrial production is expected to rise a solid 6.6% y/y with retail sales up 10.5% y/y. That split shows how China is successfully shifting to a consumer-led economy, at least so far.

Gold has posted losses in the Wednesday session, erasing the gains seen on Tuesday. In the North American session, the spot price for an ounce of gold is $1322.30, down 0.77%. On the release front, inflation numbers improved in August, although these were shy of their estimates. PPI improved to 0.2%, short of the estimate of 0.3%. As well, Core CPI gained 0.1%, missing the forecast of 0.2%. Traders should be prepared for more movement from gold on Thursday, as the US releases CPI reports and unemployment claims.

US inflation levels remain soft, well below the Federal Reserve's inflation target of 2.0%. This was again the case on Wednesday, as PPI and Core PPI, which measures inflation in the manufacturing sector, recorded small gains. The US labor market remains very strong, but wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed's plans to raise interest rates a third time this year, and the odds of a December rate hike are currently pegged at 41%, as the markets are increasingly doubtful that the Fed will make a move before next year. If the August CPI numbers beat expectations on Thursday, the likelihood of a December hike should move closer to 50% ,and any change in these odds could have a significant impact on gold prices.

As one of the most popular safe-haven assets, gold prices have moved higher in recent weeks, as tensions have ratcheted upwards over North Korea's nuclear program. In recent weeks, risk appetite has waned, as North Korea as inflamed tensions by firing missiles over Japan and testing nuclear devices, much to the consternation of the US, Japan and South Korea. However, a lull in the crisis as seen investors return to risk assets, triggering lower gold prices. Still, North Korea remains a geopolitical hot spot, and investors could flock back to gold if the war of words between US President Trump and North Korean President Kim Jong-un escalates and Kim decides to shake things up with a missile launch or nuclear test.

The EUR/USD turned negative as strong demand for the greenback grew, even on the back of positive employment data out of the Eurozone. Employment grew by 0.4% in the common region in the second quarter of this year, which is 0.1% better than the forecast. Industrial production in the euro zone also increased by 0.1% in July compared to the 0.6% decline in June. The market mostly shook off the producer price index report in the US which increased by 0.2% in August, 0.1% short of the forecasted figure. Investors are in no hurry to accumulate positions as they wait for tomorrow's release of consumer inflation data in the US, that may significantly impact the future plans of the Fed concerning the next interest rate hike.

A stronger US dollar also supported the USD/JPY bulls. Additional stimulus for the pair came from positive dynamics from the BSA manufacturing index in Japan that in the third quarter reached 9.4 against the forecasted 4.8. Tomorrow traders will be monitoring statics on Japanese industrial production in July that will be published at 04:30 GMT.

The British pound has been under pressure thanks to slower than expected wage growth in the country. In July the pace of wage growth remained at 2.1% compared to the average forecast of 2.3%. Even the decline in the unemployment rate to 4.3% was not enough to compensate for the weak data on wages and negative influence from the appreciation of the US dollar. Volatility is likely to remain high tomorrow as the Bank of England votes on interest rates.

EUR/USD

The EUR/USD price started to fall after some consolidation under the 1.2000 mark. Currently the quotes approached the inclined support line and in case of overcoming it and the local minimum near 1.1924 we may see a continued decline to 1.1825 and even 1.1750. Growth potential for the time being is likely to be limited by the multiyear high near 1.2100.

GBP/USD

The sterling rolled back after recently overcoming the 1.3300 mark. In case of growth resuming, the next target within the rising channel will be 1.3400, but on the other hand, breaking through the lower boundary of the channel may force traders to sell the pair and the closest objective in that case will be at 1.3150. The RSI on the 15-minute chart came close to the oversold zone, indicating a potential upward rebound.

USD/JPY

The USD/JPY demonstrated a confident rising dynamic and is now trying to overcome resistance at 110.30. Fixing above this level is likely to stimulate the bulls to push the quotes higher to 111.00. The MACD signal line just crossed the zero point which is an additional stimulus for bullish sentiment. In case of downward correction, the pair may return to the important 109.60-110.00 range.

The British pound has posted losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3208, down 0.56% on the day. On the release front, British employment numbers were mixed. Average Earnings Index remained steady at 2.1%, shy of the forecast of 2.3%. There was better news from unemployment claims, which declined 2.8 thousand, more than the estimate of a 0.8 thousand decline. As well, the unemployment rate edged lower to 4.3%, below the forecast of 4.4%. In the US, inflation numbers improved in August, but fell short of the estimates. PPI improved to 0.2%, shy of the estimate of 0.3%. As well, Core CPI gained 0.1%, short of the forecast of 0.2%. Traders should be prepared for a busy Thursday. The BoE will release the benchmark interest rate, while the US will publish CPI and unemployment claims.

It has been a busy week for the British pound. On Tuesday, the pair jumped to 1.3288, its highest level since September 2016. The pound was buoyed by strong inflation data, as CPI improved to 2.9% in August, up from 2.6% a month earlier. CPI, the primary gauge of consumer inflation, jumped on higher clothing and fuel prices. With inflation remaining above the BoE's target of 2.0%, policymakers will be under renewed pressure to raise interest rates. However, the economy has lost steam in 2017, and rate hike could hurt the economy. How will this play out at the BoE? Policymakers won't have much time to mull over the latest inflation readings, as the BoE holds its monthly policy meeting on Thursday. Whether the bank opts to raise rates or stay on the sidelines, traders should be prepared for some movement from the pound.

Bexit negotiations are grinding slowly, with plenty of major gaps between Britain and the European Union. Britain must take legislative measures to untangle itself from the continent, and the May government took a first step in that direction on Monday, as parliament voted on the EU Withdrawal Bill. The bill, which will convert all existing EU legislation into UK law, passed its second stage, with the government winning the vote by 326-290. However, the bill is far from done, with many MPs, including Conservatives, tabling amendments. For Prime Minister May, still smarting from a disastrous June election, the vote is a small victory on the long journey of navigating Britain out of Brexit.

Despite a strong economy, US inflation levels remain stubbornly weak, well below the Federal Reserve's inflation target of 2.0%. This was underscored on Wednesday, as PPI and Core PPI missed their estimates in August, although both releases did rebound compared to the July readings. The US labor market remains very strong, but wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed's plans to raise interest rates a third time this year, and the odds of a December rate hike are currently pegged at 41%, as the markets are increasingly doubtful that the Fed will make a move before next year. If the August CPI numbers beat expectations, the likelihood of a December hike should move closer to 50%.

The strongest currency among the top 10-traded currencies last year and again the strongest since the start of the 2nd half of 2017. Last week's rate hike to 1.00% was the 2nd of the year, which reverses the two emergency rate cuts of 2015, delivered against the impact of sub$30 oil.

And so the question becomes the following: Does last week's rate cut present a normalisation of monetary policy or is it the start of a more prolonged tightening policy cycle? The answer from the Bank of Canada would be to wait for the data. My expectation is that there is room for one more rate hike this in late Q4 or early Q1.

No Currency Worries?

The Bank of Canada faces uncertainties from the US (its largest trading partner) such as the future of NAFTA and the US debt ceiling. The loonie's 9% appreciation against the USD so far this year may also present challenges for exporters, but the central bank explained the strength as a reflection of the economy's growth differential with the rest of the world, which is another way of stating that currency strength is valid. And when comparing the CAD to the currencies of Canada's other 2 major trading partners, China and Mexico, CAD is up 4% vs. CNY and down 5% against MXN.

Canada's structural strength is also helping the currency stand out from the rest. A budget deficit of less than 1% of GDP compares with 3.7%, 2.4% for the US and UK respectively. This has enabled Ottawa to deliver tax cuts last year, something that no major G5 nation could contemplate due to their deteriorating fiscal balances.

The charts below highlight how the Canadian can take advantage of the best of both worlds; USD weakness and oil stabilisation. The 2 graphs indicate the rally in CAD vs. USD accelerated notably while US Crude oil consolidated under $49. But any corrective rebound in the US dollar may not necessarily imply a rapid decline in oil prices as long as the general commodities picture remains positive.

USDCAD may recover to 1.2400 as part of the Fed's efforts to signal the start of selling its bond portfolio, but I expect that by end of this year, traders will be more concerned with 1.17 than 1.27.

This is a quick update.

Dollar surges on news that the Americans will finally get the details of US President Donald Trump's tax reforms in the upcoming weeks. House Ways and Means Committee Chairman Kevin Brady, the chief house tax writer, said the tax overhaul framework will be released in the week of September 25. Brady noted that the document will include "core elements of tax reports.

And he emphasized that there is "really the consensus of the tax writers themselves so that we're working from the same page". The group of writers include Speaker Paul D. Ryan, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin G. Hatch, Treasury Secretary Steven Mnuchin, and White House economic adviser Gary Cohn.

And, the tax writers are going to "take it from there on the details". And, Brady also said that the timetable is "still delivering this to the president's desk this year".

Separately, Trump had a White House dinner with three Democratic senators yesterday. Another meeting is scheduled today with a bipartisan group of moderate House members, the Problem Solvers. Meanwhile, Trump also continued to put pressure on the Congress and "tweeted" that "with Irma and Harvey devastation, Tax Cuts and Tax Reform is needed more than ever before. Go Congress, go!"

Technically, in spite of the strong rebound this week, there is no clear confirmation of trend reversal in Dollar yet. EUR/USD is held well above 1.1822 support. USD/CHF held below 0.9679 resistance. AUD/USD held well above 0.7807 near term support. USD/CAD held well below 1.2412 support turned resistance. Nonetheless, thanks to the return of risk appetite, USD/JPY's breach of 110.66 resistance is raising the chance of near term reversal. That is, the correction from 118.65 could have completed at 117.31. But we'll have to see if USD/JPY can sustain above 110.66 resistance first.

Meanwhile, the development in 10 year yield is worth a note. Yesterday's break of 2..167 resistance argues that fall from 2.396 has completed. TNX follows with some resilience today. The whole correction from 2.621 could have be completed at 2.034. Near term focus is now back on 55 day EMA at 2.204. Firm break there would pave the way to 2.396 resistance to confirm this bullish case.

USD/CHF - 0.9640

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9618

Kijun-Sen level                    : 0.9613

Ichimoku cloud top                 : 0.9574

Ichimoku cloud bottom              : 0.9528

Original strategy :

Buy at 0.9540, Target: 0.9640, Stop: 0.9505

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9680, Target: 0.9580, Stop: 0.9715

Position : -

Target :  -

Stop : -

Although the greenback has surged again in NY morning and near term upside risk remains for the rally from 0.9421 low to bring retracement of early decline, overbought condition should limit upside to 0.9680 (previous resistance as well as 38.2% Fibonacci retracement of 1.0100-0.9421) and bring retreat later today or tomorrow, below the Kijun-Sen (now at 0.9613) would bring test of intra-day support at 0.9584 but reckon downside would be limited to 0.9540-45 and the lower Kumo (now at 0.9528) should hold, bring another upmove later.

In view of this, we are inclined to turn short on further subsequent rise. Above 0.9698-99 resistance would extend gain to 0.9725-30 but still reckon upside would be limited and 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance) should hold, risk remains for another retreat to take place soon.

GBP/USD - 1.3215

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3267

Kijun-Sen level                    : 1.3267

Ichimoku cloud top              : 1.3227

Ichimoku cloud bottom        : 1.3225

Original strategy :

Buy at 1.3195, Target: 1.3295, Stop: 1.3160

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.3285, Target: 1.3185, Stop: 1.3320

O.C.O.

Buy at 1.3160, Target: 1.3260, Stop: 1.3125

Position : -

Target :  -

Stop : -

As cable has dropped again after meeting renewed selling interest at 1.3290, suggesting a temporary top has been formed at 1.3329, hence consolidation with downside bias is seen for correction to 1.3195-00, then towards support at 1.3161, however, near term oversold condition should limit downside to 1.3130-35 today and bring recovery later to 1.3250 and then towards resistance at 1.3290 but price should falter well below said resistance at 1.3329, bring another corrective decline later.

In view of this, whilst we are still looking to buy cable on further corrective fall, we would sell sterling on recovery as said resistance at 1.3290 should cap upside, bring another corrective decline later. Only break of said resistance at 1.3329 would abort and signal recent upmove is still in progress for headway to 1.3355-60 (61.8% projection of 1.2909-1.3224 measuring from 1.3161). 

EUR/USD - 1.1895

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1940

Kijun-Sen level                  : 1.1940

Ichimoku cloud top             : 1.1998

Ichimoku cloud bottom      : 1.1959

New strategy  :

Sell at 1.1940, Target: 1.1840, Stop: 1.1975

Position : -

Target :  -

Stop : -

As the single currency has dropped again after meeting renewed selling interest at 1.1995 earlier today, suggesting the selloff from 1.2093 top is still in progress, hence downside bias remains for this move to bring retracement of early upmove to 1.1868 support, break there would extend weakness to 1.1850, however, near term oversold condition should prevent sharp fall below another previous support at 1.1823 and reckon 1.1800 would hold from here.

In view of this, would not chase this fall here and would be prudent to sell euro on recovery as 1.1940-50 should limit upside. Above 1.1975-80 would signal an intra-day low is formed, bring rebound to 1.1995-00 first. 

USD/JPY - 110.61

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 110.30

Kijun-Sen level                  : 110.25

Ichimoku cloud top             : 109.52

Ichimoku cloud bottom      : 108.71

Original strategy  :

Buy at 109.45, Target: 110.45, Stop: 109.10

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 109.65, Target: 110.65, Stop: 109.30

Position :  -

Target :  -

Stop : -

As the greenback has surged again in NY morning, adding credence to our bullish view that recent rise from 107.32 low is still in progress and may extend further gain towards previous resistance at 110.95-05, however, break there is needed to retain upside bias and encourage for headway to 111.30, having said that, near term overbought condition should prevent sharp move beyond another previous resistance at 111.71, bring retreat later.

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback. Below the Kijun-Sen (now at 110.25) would bring test of support at 109.90 but reckon the upper Kumo (now at 109.52) would contain downside and bring another rally later