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Another day in the green for the Greenback! Market factors such as the increased focus on tax reform, upbeat CPI expectations, and record highs for equity indices combined forces to lift the U.S. currency for the third day in a row this week.

  • U.S. headline PPI up 0.2% vs. projected 0.3% gain, previous 0.1% decline
  • U.S. core PPI up 0.1% vs. estimated 0.2% increase, previous 0.1% decline
  • U.S. crude oil inventories rose by 5.9M barrels vs. 4.1M forecast
  • U.S. federal budget deficit at $107.7B vs. $118.6B estimate, $42.9B previous

Major Events/Reports

Progress on U.S. tax reform?

If there’s one thing that could spur a strong rally in U.S. markets, it’s the prospect of tax reform happening sooner than expected. This was something that market watchers have witnessed after the U.S. elections and Trump’s inauguration, and it seems to be getting bulls’ hopes up once more.

U.S. President Trump recently had a meeting to discuss his plan to lower corporate taxes and 13 members of Congress comprised of eight Democrats and five Republicans were reportedly present. This also likely reminded dollar traders of the progress made in extending the debt limit a few days back, hinting that a bi-partisan agreement could be possible.

According to the Donald, the political parties should be able to come together to reform the tax code into something that is pro-jobs, pro-family, and pro-American. He also brought the topic of healthcare back on the table and also expressed openness to a bi-partisan deal on DACA, generally sending the idea that politicians are willing to put their differences aside.

Even Senator Ted Cruz who usually opposes a larger budget deficit cited that the tax plan shouldn’t be revenue-neutral. He’s throwing his support behind lowering the corporate tax to 15-20% even if this means running a larger shortfall for the government, basically signaling that even the most fiscally-conservative members of Senate could have a change of heart.

  • The Dow 30 index is up 39.32 points to 22,158.18 (+0.18%)
  • S&P 500 index is up 1.89 points to 2,498.37 (+0.08%)
  • Nasdaq is up 5.91 points to 6,460.19 (+0.09%)

PPI rebound lifts CPI expectations

Producer prices showed the expected rebound for the month of August and even though the actual readings were a notch lower than consensus, this seems to have revived expectations for FOMC hawkishness.

The headline PPI rebounded by 0.2% after previously dipping by 0.1% while the core reading showed a 0.1% uptick versus the estimated 0.2% gain. Underlying data revealed that prices for final demand goods were up 0.5% for the month, its largest pickup since April, while final demand services reported a 0.1% increase in prices.

In addition, as my buddy Forex Gump outlined in his U.S. CPI preview, this supports upbeat inflation report forecasts along with leading indicators such as PMI surveys.

Crude oil chalks up more gains

Black Crack also had a pretty good day as it was able to shrug off the inventory buildup reported by both the American Petroleum Institute and the Energy Information Administration. The latter printed an increase of 5.9 million barrels versus the projected rise of 4.1 million barrels.

As it turns out, the OPEC monthly report had actually indicated a decline in production by 79K barrels per day even as compliance has fallen from 86% to 83% in August. Apart from that, the International Energy Agency also upgraded its outlook for the year in terms of global oil demand.

In particular, the IEA noted that the combination of the output drop from the OPEC and the expected pickup in global demand could keep crude oil prices supported and rebalance inventories.

  • WTI crude oil is up to $49.33 per barrel (+2.28%)
  • Brent crude oil is steady at $55.09 per barrel (+0.01%)

Major Market Mover(s):

CAD

Lower OPEC oil production led to another leg higher for the commodity and the positively-correlated Canadian dollar.

EUR/CAD tumbled to a low of 1.4472 (-0.73%), NZD/CAD fell from .8881 to .8815 (-0.71%), GBP/CAD slipped from 1.6185 to 1.6083 (-0.61%), and AUD/CAD is down to .9722 (-0.50%)

USD

The scrilla was able to stay in the black as most market watchers revived expectations for an upbeat CPI report and a hawkish Fed bias.

USD/CHF popped up from the .9600 mark to .9642 (+0.47%), USD/JPY is back up to 110.50 (+0.38%), EUR/USD slumped from 1.1966 to 1.1886 (-0.67%), and GBP/USD is testing support at 1.3200 (-0.56%)

Watch Out For:

  • 12:01 am GMT: U.K. RICS house price balance (flat reading expected after earlier 1.0% gain)
  • 12:50 am GMT: RBA Assistant Governor Debelle’s testimony
  • 2:30 am GMT: Australian jobs report (Read Forex Gump’s preview if you’re trading this!)
  • 3:00 am GMT: Chinese industrial production y/y (6.4% expected, 6.4% previous)
  • 3:00 am GMT: Chinese retail sales y/y (10.5% expected, 10.4% previous)
  • 3:00 am GMT: Chinese fixed asset investment ytd/y (8.2% expected, 8.3% previous)
  • 5:30 am GMT: Japan’s revised industrial production m/m (no change from initial 0.8% estimate expected)