US Dollar Surges to Six-Week High

Daily Analysis - 01/10/2017

“Trump Trade” Returns as Tax Reform Proposal Revealed

us-dollar-rises


A renewed focus on US tax reform following the unveiling of the Republican tax “framework” on Wednesday helped the greenback jump to the highest point since against the Euro. Dollar sentiment was also lifted by hawkish comments from Federal Reserve Chair Janet Yellen after she advocated the pursuit of a gradual rise in interest rates, increasing investor expectations of a December hike.

Last Week


President Donald Trump, still seeking his first big legislative achievement, last week introduced a reform plan intended to simplify the cumbersome US tax code. Markets greeted the proposal positively, powering US equities and the dollar higher in anticipation of stronger economic growth. Global volatility remained broadly under control despite mixed election results in Germany and the dissolution of the lower chamber of Japan’s parliament. German Chancellor Angela Merkel will be under pressure to stitch together a three-party coalition after her Christian Democratic Union secured less seats than expected in last Sunday’s German election. The uncertain political climate sent the Euro lower against most of its major peers.

Brent futures rose for the fifth straight week on mounting Middle-East tensions after Turkey threatened to block Iraq’s exports following an independence referendum by Iraqi Kurds. On the economic data front, estimates from the US Bureau of Economic Analysis showed the economy expanded at an annualized rate of 3.10%, upwardly revised from last month’s reading of 3.00%. US durable goods orders for August came in better than projected, while new home sales fell short of estimates. Elsewhere, inflation in the Euro Area failed to pick up in September, with consumer price growth staying unchanged from August at 1.50%.  In monetary policy action, the Reserve Bank of New Zealand left the official cash rate at a record low of 1.75%.

popup_close
eurusd-h4-4

The Week Ahead


Given the recent rally in the US dollar, data coming out of the country will be in focus to further confirm the strength in the currency. US Nonfarm Payroll figures for September will be released on Friday, with the+ consensus calling for the addition of 98,000 jobs last month, with the jobless rate expected to remain steady at 4.40%. The ISM manufacturing PMI will be available on Monday and is forecast to moderate from 58.8 in August to 58.0 in September. August US trade balance numbers will follow on Thursday, along with factory orders. Canada’s official jobs report is due on Friday, with a better than expected reading likely to lift the “Loonie” from a one-month low against the greenback. Economic data out of the Euro Area will include the currency bloc’s unemployment rate on Monday and German industrial orders on Friday.

However, investor attention will be firmly fixed on the ECB’s account of its September policy decision. The meeting minutes should provide some additional clarity on what to expect when policymakers next meet on October 26th. In the Asia-Pacific region, trading activity could be thin in a holiday-filled week. The Reserve Bank of Australia is widely-expected to hold its benchmark interest rate at 1.50% and maintain its neutral bias when it meets on Tuesday.

popup_close
usdcad-h4-7

Please note that CFDs are a leveraged product and may result in the loss of your entire capital. Please ensure that you fully understand the risks involved.