The prospects of U.S President Donald Trump unleashing a “phenomenal” tax plan in the coming weeks have boosted risk sentiment consequently elevating global stocks. Asian shares cemented gains during early trading on Monday with the renewed Trump-on trading mood propelling European markets into the green territory. the financial market may be poised to trade higher if the bullish momentum from Asia and Europe coupled with the “Trump effect” encourages investors to seek riskier assets. Although there is a possibility of stocks following a positive trajectory this week from the rekindled risk appetite, the threat of Trump’s “phenomenal” tax plan falling short of market expectations may limit upside gains.
Dollar revived by Trump
The Greenback staged a sharp rebound last week after U.S. President Donald Trump promised a “phenomenal” tax plan which was seen as supportive of U.S. economic growth. It is becoming increasingly clear that the Dollar’s value has been dictated by Trump this quarter with optimism over fiscal stimulus, infrastructure spending and tax cuts fuelling the bull rally. Expectations of higher U.S. interest rates in the future have also played a part in supporting the Greenback with prices likely to remain buoyed in the medium to longer term. While prices may be supported in the longer term, there is a risk of bears attacking the Dollar in the short term if the pending tax announcement in the coming weeks leaves participants empty handed. From a technical standpoint, the Dollar Index remains slightly pressured on the daily charts with weakness below 100.50 encouraging a further decline lower back towards 100.00.
Yen remains a friend in times of uncertainty
The Japanese yen found itself exposed to downside risks against the Dollar on Monday after the combination of soft domestic data from Japan and the risk-on trading environment enticed bears to install repeated rounds of selling. Japan's economy grew by 0.2% in the final quarter of 2016 which continues to highlight how soft consumer spending, tepid inflation and external headwinds have impacted the third largest economy in the world. With uncertainty still a dominant theme in the longer term, the appetite for the Yen may heighten consequently punishing Japanese exporters further. The U.S. dollar/Japanese yen (USD/JPY) currency pair continues to fulfill the prerequisites of a bearish trend on the daily charts as there have been consistently lower lows and lower highs. Weakness below 113.50 created from risk aversion could trigger a further selloff lower towards 112.50.
Currency spotlight – EUR/USD
The slew of elections in Europe combined with the rising threat of Eurosceptic parties disrupting the unity of the Eurozone has exposed the euro to heavy losses. Sentiment remains bearish towards the Euro/U.S. dollar (EUR/USD) currency pair and recent reports of Greece’s debt crisis returning with full forces has encouraged bearish investors to attack the currency repeatedly. The horrible combination of heightened political risks, uncertainty and a resurgent Dollar in the longer term could send the EUR/USD lower towards 1.0500. Technical traders may observe how the EUR/USD reacts to the 1.0650 resistance with weakness acting as a signal for sellers to send prices lower towards 1.0500.
Commodity spotlight – WTI Crude
WTI Crude remains entangled in a fierce tug of war as optimism over OPEC cutting oil production coupled with fears of U.S. shale pumping oil incessantly keeps investors on edge. While last week’s unexpected draw in U.S. gasoline inventories bolstered oil as optimism rose over demand remaining healthy in the world’s largest oil market, fears of U.S. shale impacting the OPEC agreement capped oil prices below $54. Oil markets may be injected with extreme levels of volatility this quarter if fears resurface over the oversupply in the global markets making a return. Technical traders may observe how WTI crude reacts to the $54 resistance level with weakness potentially opening a path lower towards $52.