Intraday Market Thoughts

Trump Tax & ECB Hint

by Adam Button
Apr 25, 2017 23:50

We've spent the past six months getting to know Donald Trump and a playbook is beginning to emerge. It was evident in the trade as USD/CAD hit a 14-month high on Tuesday. Euro soared ahead on chatter that the ECB may hint at tapering in June. Australian CPI is due up next. The stocks rally stopped out the DOW30 short and USDCAD long Premium trades, while the EURUSD long from Friday hit its final target. 8 of the last 10 EURUSD trades in the Premium Insights since the Dec Fed hike have hit all targets. A new JPY had been issued.

Actions from Trump follow a three-part arc. First is the hint, the act itself and then damage control by his staff. The latest example was his spat with Canada over dairy.

He first mentioned Canada last week on a trip to Wisconsin when he said dairy farmers were being treated unfairly. On Tuesday, he slapped tariffs on Canadian lumber as part of the response. Afterwards, Commerce Sec Wilbur Ross downplayed the move and said Canada was a good neighbour.

In terms of trading, the time to sell CAD was on the first mention, even though it didn't include a specific threat. Trump appears to speak off-the-cuff but he's repeatedly show that it's part of an agenda and that was the case with Canada. The time to buy back CAD was shortly after the act itself. The tariffs sent USD/CAD up through 1.36 on Tuesday to the highest since last year when oil was bottoming. The loonie staged a small recovery back to 1.3560 on Ross' comments.

Along with that arc, the pattern has been that the first move from Trump is the strongest. When he bombed Syria, the fear was that it was the start of a campaign, but it's gone quiet since. Expect Trump to move on from Canada now.

As for USD/CAD, Trump isn't the only factor. Oil climbed a half-cent Tuesday but it remains in a downtrend. Meanwhile, the French election result and hopes for a Trump tax cut are the driving force in broader markets.

But if you apply our arc to the tax story, you had the hint on Friday. That was the time to buy risk assets. The 'plan' itself has largely been leaked so that may mark the top. In the aftermath his staff will play down parts of the plan that are unrealistic.

Aside from Trump, Australian and New Zealand traders returned from holiday today and that Aussie Q1 CPI report is on the agenda at 0130 GMT. The consensus is for a 2.2% y/y rise with the trimmed mean up 1.8%. Expect a big AUD move on any miss.

Act Exp Prev GMT
CPI (q/q)
0.6% 0.5% Apr 26 1:30

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