FTSE +18 points at 7282
DAX +30 points at 12485
CAC +10 points at 5278
Euro Stoxx +5 points at 3582
The US stocks were re-energized after the White House announced that the US corporate taxes will be cut by 15% as part of Donald Trump’s ‘major’ fiscal plan. According to the latest news, the personal income taxes will also be reduced. More details are due at the Wednesday’s announcement. Donald Trump will prioritize the tax cuts over the deficit. In this respect, the US debt ceiling should be adjusted to avoid an eventual government shutdown. Nevertheless, the early highlights regarding the very much expected tax reforms pleased the private sector investors. The optimism is back in the US markets.
The US stocks rallied to three-week highs on early indications of Trump’s tax reforms. The Dow Jones traded just shy of $20’800 in New York. The S&P 500 advanced to $2’377. The US stock rally could continue until the announcement of more details on Wednesday.
The US optimism helped the Asian stocks higher: Nikkei (+0.79%), Topix (+0.85%), Hang Seng (+0.99%) and Shanghai Composite (+0.39%) after recording the worst day of the year on Monday.
The enthusiasm is expected to spread over the European stocks traders. The DAX is expected to open upbeat and could test untouched territories for the second consecutive day, after having hit an all-time high (€12’456.18) on Monday, posterior to the first round of the French election rally. The FTSE is called 18 points firmer as oil prices recover for the first time following eight straight sessions of losses.
Regarding at the currency markets, Trump’s fiscal plans also revived the Federal Reserve (Fed) hawks. Expansive spending plans I the US are expected to keep the Federal Reserve (Fed) alert regarding the monetary conditions. The Fed could be brought to steepen its rate tightening policy, along with its balance sheet shrinkage plans. Although the US 10-year yields remained stable at about the 2.30% level, the expectations of a Fed June hike rose to 66.5% from 43% seen a week earlier. It is implicitly assumed that exceeding the 80% probability, an interest rate hike becomes a real consideration for the Fed.
The US dollar firmed against all of its G10 counterparts; the Canadian dollar (-0.41%) has been the biggest loser on additional news that Canadian softwood imports to the US would be taxed 24%, up from 3% til now. The kiwi (-0.34%) and the yen (-0.33%) were also among the leading losers over the first trading day of the week.
Still, the USD/JPY remained capped at 110.60 resistance (minor 23.6% retracement on December – April) and slipped below 110.00 mark. The pair traded below the 200-day moving average the majority of the Tokyo session. The daily MACD (Moving Average Divergence Converge) is still pointing at a negative trend, yet the USD/JPY-bears could be losing momentum.
Two factors could inspire a renewed recovery attempt in USD/JPY. First, the broad based US dollar strength and improved US yields could encourage the capital to flow from the yen to the US dollar. The risk-on mood could reinforce the volumes. Second, the Bank of Japan (BoJ) will meet on Thursday and is expected to maintain the status quo, which would inevitably mean a wider divergence between the Fed and the BoJ’s policy outlooks. Governor Kuroda told the markets that the BoJ will keep its monetary policy easy until the 2% inflation target is reached. Due on Friday, the Japanese inflation, ex-fresh food, has certainly remained unchanged at 0.2% year-on-year, comfortably far from the BoJ’s mandate goal.
In light of the above stated reasons, levels below 110.00 could encourage the dip-buyers to re-challenge the 110.60 resistance, and if surpassed, could suggest a further rise toward the critical 112.13 (major 38.2% retracement). Up to this level, the USD/JPY recovery will have no technical impact on the mid-term negative trend. Above 112.15, the mid-term bullish reversal could either encourage a further appetite for the 115.00 mark, or trigger a downside correction.
Gold consolidates between $1270/1280 range. Higher US yields based on the US tax reform and improved risk appetite posterior to the first round of the French election could encourage a deeper downside correction to $1256, the critical Fibonacci 38.2% retracement on March 9th to April 16th rise, especially if the the US stock rally picks up more momentum today.
Quick glance at technicals on LCG Trader:
EUR/USD intraday: bullish bias above 1.0820. Long positions below 1.0820 (pivot) with targets at 1.0900 and 1.0945 in extension. Below 1.0820, downside potential to 1.0780 and 1.0740.
GBP/USD intraday: bullish bias above 1.2765. Long positions above 1.2765 with targets at 1.2805 and 1.2835 in extension. Below 1.2765, downside potential to 1.2735 and 1.2675.
USD/JPY intraday: upside prevails. Long positions above 109.60 (pivot) with targets at 110.35 and 110.65 in extension. Below 109.60, downside potential to 109.40 and 108.95.