Intraday Market Thoughts

Tax Plan Follows the Script

by Adam Button
Apr 26, 2017 22:15

As we anticipated, the trade was to sell-the-fact on the Trump tax plan. The bulk of currencies finished the day unchanged despite some volatility, the only real movers were the commodity currencies, which lagged. The Asia-Pacific calendar is quiet as we count down to the ECB. A new USD trade has been posted alongside supproting charts moments ago.

اليورو في قيادة المؤشرات (للمشتركين فقط)

Yesterday we wrote about the Trump trading plan: to react to the first hints of action, then exit when he delivers. The market followed the script on Wednesday as he delivered his long-touted tax plan.

As anticipated, it wasn't a plan. It was a one-page, bullet point draft of a dozen principles that he hopes to achieve. It mirrored his campaign pledged and much of it was leaked.

The market's response was to unwind a portion of the rally in risk assets since Friday in anticipation of the news. USD/JPY sagged 70 pips to 111.00. The US dollar fell by a smaller margin elsewhere and the S&P 500 gave up an 8 point gain to finish down 1 point.

We will look for more opportunities to trade Trump in the future.

One continues to be CAD and MXN. The White House will likely announce its intention to pull out of NAFTA in the days ahead, according to reports. The Mexican peso was especially hit hard because it would leave the nations without a trade deal. Canada would fall back on the 1987 FTA if no new deal is reached, and that's similar to NAFTA.But if it's similar to NAFTA, Trump could hate it as well. Certainly the door is now open to a radically different trading relationship between the three nations. 

USD/CAD didn't break Tuesday's high on the news but it's nearby and the close above 1.3600 is a bullish technical signal. The pair didn't break higher in part because Canadian Feb retail sales ex-autos were slightly better than expected and with a big upward revision to the prior. Also notable for the pair is that oil couldn't hang onto a gain despite a bullish inventory report.

Also on the commodity front, AUD/USD was cut down on yesterday's CPI report. In US trading, it broke below the April lows and that could set up more technical trouble.The only possible catalyst in today's Asia-Pac session is Q1 import/export prices at 0130 GMT but that's a longshot. The consensus on imports is -0.5% and exports is +8.0%.

The bigger story will come Thursday with the ECB decision. Sources reports suggest references to downside risks will be removed and that may help the euro maintain its upside momentum.

Act Exp Prev GMT
Core Retail Sales (m/m)
-0.1% -0.2% 2.3% Apr 26 12:30
CPI (q/q)
0.5% 0.6% 0.5% Apr 26 1:30
Eurozone Spanish Flash CPI (y/y)
2.5% 2.3% Apr 27 7:00

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