Trump stumble could signal more USD losses
US President Donald Trump had a truly awful time last week with a key campaign pledge in tatters and the FBI is to investigate links between the Russians and his election campaign – all of which looks increasingly bearish for USD.
The scene could be set for EUR/USD to make some serious headway in the coming months, especially when the French elections are out of the way. EUR/USD is now more likely to hit 1.1000 than 1.0500 and may even go as high as 1.1500.
The markets, especially equities, are starting to have a reality check, though forex seemed to have cottoned on earlier to Trump’s challenges of delivering on his hugely ambitious programme.
One of those big campaign promises was to repeal Obama-care. It had to be abandoned as Trump couldn’t muster enough votes in Congress, a surprising development given Republican dominance of Congress.
This could have very significant implications for efforts to cut corporate and personal taxes, the next area of focus, and plans on infrastructure spending. These are the real concerns for the markets rather than the fate of Obama-care.
It’s worth noting that the US has not seen major tax reforms since the 1980s, and getting them done by the Summer, looks overly optimistic given the complexity of the task and particularly if he cannot unite Republicans and get some of the Democrats on side.
If Trump doesn’t start delivering this year he could be punished by voters at the US mid-term elections on Nov 6, 2018 with all the seats of the House of Representatives and the Senate to be contested. In other words, the big Republican majority might be whittled down leaving Trump looking like a lame duck President plagued by legal challenges.
Indeed, the US Federal Reserve with its dovish outlook and with the US 10-year bond yield trending lower in recent weeks might be anticipating a more pedestrian level of growth for the US economy rather than Trump’s 4% target.
Meanwhile, the Eurozone economy has been surprising on the upside amid the fog of terror attacks and rising populism. However, this column is fairly confident that the French elections on April 23 and May 7 will not lead to an anti-EU candidate becoming President (a big caveat that a big scandal doesn’t take out a leading moderate candidate). Once this hurdle is cleared, the EUR could make serious headway. Of course, there is an Italian election due before May 2018, which could still rock the markets.
Trump has time to turn the situation around, and if he wants to succeed he should take a tip from previous successful Presidents, which is to focus all his energy and effort on one or two big measures.
Meanwhile, USD direction will largely depend on whether it is going to be Trump the winner or Trump the chump
TECHNICAL ANALYSIS: EUR/USD still looking good as it challenges key resistance
EUR/USD continues to make steady headway, but is now coalescing at key resistance levels around 1.0800. There’s a good chance these will soon be successfully cleared away. The daily RSI is pushing higher though still in neutral territory and the pair have just pulled back from piercing the upper Bollinger band. Meanwhile, they have moved above the 50-day moving average (purple) and are approaching the 200-day moving average (blue), which could act as a drag on upward progress.
There’s a chance the pair could struggle around 1.0800, but it’s more likely they’ll continue slowly grinding their way upwards.
Resistance levels can be seen at 1.0825-8, 1.0856, 1.0909 and 1.1016 with support placed around 1.0763, 1.0731, 1.0676-8 and 1.0539.