If you were confused by the volatility late into Friday’s session, know that it was just another round of fake news. And more importantly, US Senate Republicans narrowly passed tax reform early Saturday by a narrow 51/49 margin. Marketswill likely react positively to the huge corporate tax cut from 35% to 20%, which will increase the attractiveness of US companies. Treasury yields will likely rise in the short-term at least and the USD would likely benefit from rising US yields.
Australian assets might also get a positive inflow as former deputy PM Barnaby Joyce wins by-election in coalition boost. Exit polls show “largest swing to government in the history of Australia by-elections” according to the PM.
RBA and BOC decisions are due and we might get some hawkish comments from the latter. The week ends with Non Farm Payrolls.
USD: In the US, the most important releases will be NFP, trade balance, ISM Non-Manufacturing PMI. But the market will be swayed much more by the political developments (tax bill, debt ceiling).
GBP: The UK will issue foreign trade, industrial production, construction output, Markit PMIs. Brexit talks seem to be proceeding well and can always throw a wrench into proceedings.
EUR: in continental Europe, final GDP growth estimates will be released alongside final services PMI for the Eurozone. Germany will release industrial production, factory orders and trade balance.
CAD: the BOC interest rate decision and foreign trade will be in focus after a strong jobs report last Friday.
AsiaPac: China will release figures for trade balance, consumer and producer prices, and Caixin Services PMI. In Australia, the RBA meets but we also have GDP, trade balance, retail trade, AIG Services Index and AIG Construction Index.
Going into the week I remain bullish on US stocks, bearish on EU stocks, bullish on Crude and bearish on Silver. It seems bullion, equities, bonds and crude are reacting in sync whereas FX remains muted. In FX space, I favour CAD longs and possibly AUD longs – while the USD still has to show us where it wants to go.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.