Frantic Friday?

Frantic Friday?

Senate Republican tax cut proposals unnerved markets

It was a tumultuous Thursday as Washington smoke screens and fades have traders running every which way but up. But the overriding concern is that GOP dissent is running high creating a high level of angst that this vital piece of legislation will even pass a vote.

The Republican plan was to implement a 20% corporate tax cut after a one-year delay. Investors had a massive anxiety attack sending the Dow down 130 points, as currency traders relentlessly hammered USDJPY near the key 113 tipping point

There’s a definite risk-off tone in currency markets but trying to decipher if investors hate the plan or are merely booking profits will be the crucial determinant. All eyes are on equity index futures this morning,  after USDJPY coming within a stone through of 113.00 overnight, it’s going to be one of those “edges of the seat” days as dealers continue to digest Washington headlines. Downside USDJPY risk could accelerate hugely  on a break of critical 113 support line as this will likely trigger a wave of JPY cross-selling

The Australian Dollar 

The RBA lowered their inflation forecast through 2019 all but serving the Aussie dollar up on a platter.Although this was the likely outcome due to the change in CPI measurement methodology, we could see a decent sell-off on the Aussie eventually materialize.

 

 The US Dollar

We knew this was going to be a challenging week for the greenback given the sparse economic diary and we should expect the dollar to struggle in the weekend as US political crowing will hang like an anvil around the dollar neck near term.

The Japanese Yen

We’re holding the bottom end of the near term 113 -114.50 range but USDJPY will be at the complete mercy of tax reform rhetoric. Ultimately I expect cooler heads to prevail onUS tax reform and view the current market sell-off as a correction.Over the long haul, the overtly dovish BoJ will continue to weaken JPY.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes