US Dollar Mixed in Anticipation of Tax Reform Legislation

BOJ to stand pat on QE but could signal lower stimulus

The US dollar is mixed against major pairs on Wednesday after the tax reform bill had to go through another round of voting due to last minute changes on the Senate approved bill. The news did little for the greenback as the market is already pricing in the tax overhaul becoming legislation with the timing not that crucial. The USD is higher against the JPY and the CHF, but depreciated against the CAD and the EUR.

  • Bank of Japan (BOJ) expected to keep monetary policy unchanged
  • Canadian inflation and retail sales forecasted to have slight gains
  • US Final Q3 GDP to remain at 3.3 percent

The USD/JPY gained 0.50 percent on Wednesday. The currency pair is trading at 113.45 awaiting of The Bank of Japan (BOJ) realeasing its monetary policy statement on Thursday, December 20 around midnight EST. The central bank is expected to maintain its stimulus program despite signs of improvement in the economy with the goal that inflation accelerates. BOJ Governor Haruhiko Kuroda will offer a press conference at 1:30 am EST. The market will be following his words for any hint of reducing the quantitative easing program going forward, but likely it will be tied to improving inflation.

Next year poses more questions for the BOJ as the term of Mr Kuroda expires in April, but given the electoral win of Shinzo Abe Kuroda could become the first Japanese central bank governor to serve two consecutive terms. The BOJ has been slow to follow other central banks in abandoning or signalling their end of QE programs as inflation has remained well below their 2 percent target.

West Texas Intermediate graph

Oil prices rose in the last 24 hours after the Energy Information Administration (EIA) published the weekly US crude inventories. Oil stocks fell by 6.5 million barrels more than the expected 3.6 million drawdown. Gasoline stocks had another buildup but unlike last week this time it was smaller than the forecasted figure at 1.2 million barrels.

The lower supply numbers validate the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and 10 other major producers who agreed to limit output until the end of 2018. Weather and geopolitical disruptions in crude supply have kept the price rising despite the threat of increased output from producers who are not part of the agreement like Brazil, Canada and the United States.

The issues at the Forties pipeline in the North Sea forced the operator to shut it down to perform repairs with no a two to four week window. The Forties carries 450,000 daily barrels of oil to the UK and a third of the UK natural gas output. Oil prices could fall when the maintenance is finished ending the disruption and with the expectation that the battle between the OPEC initiate to limit output will face off against rising producing from the US.

Market events to watch this week:

Monday, December 18
7:30 pm AUD Monetary Policy Meeting Minutes
Tuesday, December 19
8:30 am USD Building Permits
Wednesday, December 20
10:30 am USD Crude Oil Inventories
4:45 pm NZD GDP q/q
Midnight JPY Monetary Policy Statement
Thursday, December 21
1:30 am JPY BOJ Press Conference
8:30 am CAD CPI m/m
8:30 am CAD Core Retail Sales m/m
8:30 am USD Final GDP q/q
8:30 am USD Unemployment Claims
Friday, December 22
4:30 am GBP Current Account
8:30 am CAD GDP m/m
8:30 am USD Core Durable Goods Orders m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza