News & Analysis

Tax Reform passes – Stocks retreat; DAX loses 1.11%; USD stalls – Gold continues rally; EUR continues to rise –EURJPY sets new 2017 high

Dec 21, 2017 | Daily Market Outlook

Today’s high impact news:

▸ Tentative JPY Monetary Policy Statement
▸ 17:30 JPY BOJ Press Conference
▸ 00:30 CAD CPI m/m – Core Retail Sales m/m – USD Final GDP q/q

U.S tax reform passed on Wednesday but stocks didn’t pulse higher. The Dow Jones closed 28.10 points lower, S&P500 closed 2.22 lower and the NASDAQ 2.89 points lower. Senate Republicans approved sweeping amendments to the U.S. tax code Tuesday, including reducing the corporate tax rate to 21 percent from 35 percent. A rapid rise in interest rates also took some momentum off the stock market. The 10-year U.S. yield hit 2.5 percent, its highest level since March 20, while the two-year yield rose to its highest level since October 2008. Now the fact has hit the market, it’s going to be interesting to see if the old rule of buy the rumor sell the fact comes into place. We’ve seen an incredible rally this year driven by tax reform hope. Are we going to see a correction emerge? The key influence will be coming out of the U.S, interesting times to come.

European markets closed lower on Wednesday, the main talking points, Steinhoff International shares tanked once again. The South African retailer said Tuesday it would be unable to provide details regarding the magnitude of accounting irregularities. Damian Green has resigned as Theresa May’s effective deputy after a Cabinet Office investigation found he had misled the public and MPs over pornography found on an office computer. The Bank of England plans to allow European banks to maintain their UK operations under current rules following Brexit, in a direct challenge to European Union regulators to adopt the same policy towards UK-based banks. The IMF advised that forecasts of a gloomy Brexit are starting to come true. Key indices all lost ground, the FTSE lost 18.87 points. The DAX tumbled by 146.62 points and the CAC traded unchanged.

The USD failed to move higher last night as traders saw limited impact from the newly passed Tax bill. The EUR, CAD and AUD all closed higher to the USD. The EURUSD continued its good week climbing by a further 30 pips. Buyers took price back to 1.1900 at one stage in the evening, retesting early December levels. The EURJPY continues its surge adding 99 pips and making a new 2017 high. Buyers have added 226 pips in three trading sessions. The JPY continues its slide. Stronger yields helped the USD hit fresh weekly highs as closed 50 pips higher. The AUD tested 6-week highs to the JPY overnight having rallied 178 pips since November 28. A lacklustre USD keep gold firmer, buyers added a further $4 overnight. Price has increased by $20 in the last two weeks.

Today the AUDUSD continues to trade in a pendant pattern after buyers failed to break out last night. The JPY is trading slightly stronger to the majors. Traders are waiting for key news coming out of the Bank of Japan today. The Monetary Policy Statement has a tentative release but historically comes out around 15:00 AEDST. At 17:30 AEDST the Bank of Japan Press Conference will be held. The Bank of Japan is expected to make its interest rate decision during the day. The AUS200 continues to find support from 6051.80.

EURJPY – the buyer train keeps on keeping on, buyers made new 2017 highs overnight hitting 134.77. We’ve seen a test and hold (to this point) of 134.40 level. Buyers look to be confirming a breakout of the range to the upside after testing the range low in November.

Good trading from Eightcap.

Sources; CNBC – The Guardian.  All times are AEDST


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