USD’s set-back might turn out to be short-lived
The USD took a knock as the tax cutting plans of the US administration could be delayed — but in the meantime, the US economy is actually doing rather well regardless suggesting the greenback could recover.
Indeed, USD saw it’s biggest weekly fall in a month as the Senate Republicans came up with a different tax plan to their colleagues in the House of Representatives, which will complicate attempts to reform the US tax system. There should be further news on this topic this week, which could also influence USD. There will be much focus on the USD 2.6tn in US corporate coffers that is held offshore and may now not be repatriated.
But in the long-run political machinations may not matter that much, because Q3 GDP data showed the US economy growing at a very respectable annualised pace of 3%. This potentially gives more leeway for the US Federal Reserve to raise interest rates and reverse its quantitative easing programme over the course of 2018-9.
If that rate of growth is sustained, that should prove more important to the USD than tax cuts. If they come to pass in 2019 or earlier they’ll be the icing on the cake for USD bulls. The rest of the world is also growing quite strongly and it may not be long before inflation starts may some sort of come back.
However, the markets are for the time being clearly focused on the administration’s tax reform agenda. But should the US economy keep growing strongly and inflation nudge higher, that will likely attract traders’ attentions.
TECHNICAL ANALYSIS: EUR/USD poised to reverse bearish pattern?
Just as EUR/USD appeared to be starting to follow the script described by the technicals, politics intervened in the shape of concerns over US tax reforms. During the course of this week there’s a good chance that the bearish pattern on EUR/USD could unravel further leading to more gains for the single currency with the slow stochastic having issued a strong buy signal as well.
But as of Friday’s close the bearish pattern for EUR/USD was still evident. Nonetheless, a climb to levels around 1.1750-1.1800 would certainly suggest that it has been reversed with a challenge to levels above 1.2000 looking likely.
Resistance can be seen at 1.1680, 1.1735, 1.1757 and 1.1776 with support placed around 1.1640, 1.1622, 1.1582 and 1.1553.
By Justin Pugsley, Markets Analyst, MahiFX