Risk appetite remains well supported throughout major indices as sentiment rides the post French election wave of positivity into today’s expected big reveal on Donald Trump’s tax plans. In the European session better results and some M&A chat helped maintain the upward momentum we’ve seen thus far this week while the Euro also found itself in demand after “sources” reported the ECB may look to alter its language now Macron got through the first round of the French elections and for now looks a likely winner, removing some potential downside risk for the region, thus the language change would be expected to be hawkish. EURUSD pressed back above 1.0900 while EURGBP moved back above .8500.
In the US session markets followed Europe’s lead, the NASDAQ traded to record highs breaching 6000 for the first time, while other indices also had strong momentum pressing near record highs supported again by earnings data. It was a mixed bag for the USD, the US index which measures the dollar’s performance against a basket of currencies was down on the day as the greenback lost ground vs the more heavily weighted Euro and GBP, however the USD showed strong gains vs JPY, AUD and NZD amongst others so it was not one way flow for the USD.
Overnight some mixed to soft CPI inflation data from Australia added to the AUD decline. It has been a slower start this morning, with plenty of red across the board on indices while the USD is outperforming, however this is likely just some risk being taken off the table ahead of today’s expected releases.
Data wise, the economic calendar offers very little to get excited about today, so attention will be towards the US and the tax plan. We have seen plenty of over promising and under delivery in Trumps’ first 100 days and today’s release is not expected to be a firm plan, more likely a wish list. We have already heard reports that Trump will be aiming for a cut to 15% in the top corporate tax rate, reducing US corporate foreign earnings tax from 35% to 10% but as always the proof will be in the pudding. I will be very interested to see the follow through in any moves as a results of Trumps’ comments, it feels like markets are beginning to discount such promises from Trump with the initial market reaction quickly fading back to normal. While equites have certainly rallied into the cause this week supported on a number of fronts, the USD remains over 5% off 2017 highs, and yesterday the USD index traded back to levels last seen on the day of the US presidential vote. US treasury yields continue to fall, and with trump continuing to talk down the USD, markets may be beginning to question if the Greenback can regain its footing.
Looking at the major currencies, and levels;
EURUSD holding above 1.0900, sellers and resistance to move higher are lined up from 1.0935 up to 1.0985. Only a break above the top range carries severe bullish implications for EURUSD in my view and let’s not forget the ECB tomorrow. After yesterday comments from an “ECB source”, markets are expecting the ECB’s tone to be hawkish, I think that will only set up disappointment and still favour selling EURUSD rallies into the highs.1.0861 offers support, while 1.0700 area likely offers a firmer area to any breakdown
EURGBP: back above 0.8500 and resistance to moves higher appear from .8535 up to .8560. Again a break back above there would favour additional upside, while a break below .8480 support needs to go to open progression back to the lows and that key .8300 area in time. GBPUSD has been in consolidation between 1.2770 and 1.2860 for over a week. That remains the range and only a break either side will change the view for now.