In case you’ve been too busy buying the newest iPhone X(pensive?), you’ve probably noticed that the major currencies have been mostly shrugging off economic data in favor of other catalysts.
I’ve compiled a list of market movers that have been influencing major forex pairs lately, and why they could continue to affect price action:
U.S. tax reform updates
The reason why U.S. assets have rocketed when Trump won the Presidency was that he promised (a) more infrastructure spending, (b) tax reform, and (c) better trade deals for Uncle Sam.
Fast forward to almost a year later and Trump and his Republican mates have finally gotten started on the thing they’re most passionate about – taxes. The Lower House has submitted its version easily enough and, after last-minute wheeling and dealing, the Senate has also gotten enough votes to pass its own version of the bill.
The battle is not over, however. The Upper and Lower Houses are expected to begin their talks to come up with a common version they can both agree to. They also have to do it before the year ends, which is Trump’s rumoured deadline for the bill.
And if those aren’t daunting enough, they also have to deliver a tax bill that has teeth and that would convince market players of its usefulness in boosting the economy. Talk about a tall order!
Trumps’ Russiagate saga
Did the Russians really give Trump an edge in the elections? More importantly, did Trump and/or his team play any active role to get the Russians to do it (if they did do it)? Unfortunately for the POTUS, speculations are still very much alive even a year after the elections.
I had to fire General Flynn because he lied to the Vice President and the FBI. He has pled guilty to those lies. It is a shame because his actions during the transition were lawful. There was nothing to hide!
— Donald J. Trump (@realDonaldTrump) December 2, 2017
In this month’s episode market bees are buzzing about how Trump’s former national security adviser, Michael Flynn, pled guilty to lying to FBI agents about his conversations with then-Russian Ambassador Sergey Kislyak. BFD, since the internet hasn’t forgotten about Trump’s tweet implying that he knew about the lie.
If the Donald DID write that tweet, then he could be investigated for obstruction of justice. And though it’s unlikely that the POTUS will go down over it, the possibility of an impeachment is enough to keep dollar bulls from buying the dollar ahead of the Fed’s widely-expected rate hike this month.
Back in September the centre-right Christian Democratic Union (CDU) secured a fourth term for Angela Merkel but ended up having the worst numbers in 68 years.Her first attempt to find coalition buddies failed in mid-November and now she’s trying to form a “grand coalition” with former partner Social Democratic Party of Germany (SPD). Thing is, SPD wasn’t as excited for another round after its lukewarm reception in the election.
SPD’s reluctance have been keeping a lid on euro’s demand and even wreaked havoc on the euro’s price action last week, but things are starting to look up for Merkel.
Just yesterday SPD’s leadership unanimously decided to open talks with CDU again. SPD leader Martin Schulz said “We will explore whether and how the formation of a government is possible in Germany,” but qualified that SPD party members will get the “final word” on any formal coalition talks.
If Merkel succeeds in wooing the SPD back on her team, then she can keep calm and carry on with her policies. However, keep your eyes peeled for her concessions to the party, as well as the possibility of right-wing AfD officially becoming the “opposition” if SPD does end up
Brexit negotiations (Season 2, Episode 34)
Last week several news outlets hinted that the U.K. might be willing to give in to the EU’s demands after all. Specifically, PM Theresa May and her team might be paying liabilities worth up to €100B, which would advance the negotiations as it trims down the EU’s initial demands to (1) the role of the European court regarding citizens’ rights and (2) resolution of the Irish border issue.
Though May has denied the paying of the bill part, pound bulls were happy enough to buy the rumors throughout last week.
But that was last week. Just as May was ready to shake hands with European Commission President Jean-Claude Juncker in Brussels, Arlene Foster, leader of pro-Brexit Democratic Unionist Party (DUP), dropped the bombshell on May by saying that she won’t support May’s commitment to keep Northern Ireland aligned with EU laws. Not surprisingly, the pound took heavy hits across the board.
See, a leaked 15-page joint statement draft between the EU and the U.K. published early Monday suggested that “in the absence of agreed solutions, the UK will ensure that there continues to be continued regulatory alignment” with the internal market and customs union.
Foster was quick to denounce the idea, saying that “Northern Ireland must leave the EU on the same terms as the rest of the United Kingdom. We will not accept any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the United Kingdom.”
Brexit negotiators are now expected to have another on Wednesday and maybe have something put together by the end of the week.