Two distinct drivers monetary policy and political developments continue to mould investor sentiment. With the weekend to digest Friday’s US political headlines. The picture is not much clearer, and that uncertainty saw opening market’s sell USDJPY as we have not likely seen the last of the divide among the GOP.
While there was little initial panic on Friday over the AHCA getting pulled, some in the markets argue that this failed vote is a litmus test for the ability of the Trump administration to drive the President’s agenda going forward. How quickly the White house administration can pivot to and get a convincing message across on tax reform will likely be the major focus early in the week. The market is desperately seeking any glimmer of optimism that the tax reform agenda can unite Republicans.
A very light week for Australian data so look for external drivers to remain dominant. I suspect we will continue to see the Aussie’s tight correlation with global equities play out; and with so much uncertainty brewing on Capitol Hill, investors backbones will likely get tested out of the gates this week as stock markets will likely flounder.
In addition to the wobbly capital markets, iron ore prices rolled over collapsing some 19 % last week as rebar prices slumped. Markets sideswiped by China property curbs and hikes in China’s repo rates that are designed to curb excessive financial speculation as the mainland leaders appear determined about reining in unbridled debt-fueled speculators.
The dollar has been under early pressure as the JPY is benefiting from the political uncertainty unfolding on Capitol Hill. Some traders are thinking we’ve seen the near term high water mark for USDJPY; as the market views the AHCA vote as a possible foreshadowing of a watering down of Presidents Trump’s power in Washington. Friday we saw a case of buying the rumor on the significant tax reform hope, but today many will sell banking on a divided GOP.
Ploughing through the 1.0830 level is very constructive for the EUR. The perception that political risks are diminishing in Europe but escalating in the US has the Euro poised to make further headway. The apparent shift in ECB to a less accommodating stance has traders thinking policy pivot; as the recent inflation, and PMI data supports this notion.
This article is for informational purposes only and is not investment advice nor a call to buy or sell securities.