Market Drivers March 27, 2017
USDJPY nears 110.00 support
Nikkei -1.44% Dax -0.69%
Europe and Asia:
EUR IFO 112.3 vs. 111
The dollar tumbled across the board at the start of week’s trade, as markets reacted to President’s Trump failure to pass the healthcare reform act, with traders now concerned that his weakened standing will imperil any tax reform this year.
On Friday President Trump abandoned his efforts to reform the ACA colloquially known as Obamacare, when a combination of moderate and ultra-conservative Republicans refused to vote for the legislation. The move was seen as a massive hit to Mr. Trump’s credibility who enjoys a majority in both chambers of Congress and yet was unable to even pass the bill through the House of Representatives.
The fear in the markets is that this loss of momentum will make it much more difficult for President Trump to move forward with any tax reform and tax cuts this year, especially since he faces fierce opposition on the border tax issue from his own party.
The disappointment from investors quickly translated into risk aversion selloff in the equity markets with Nikkei and Dax both down – the former closing nearly -1.5% lower. With no economic data on the docket in US, equities will likely drive trade in the FX for the rest of the day. If the gap down open is not filled as the day progresses, USDJPY will almost certainly test the key 110.00 level which it has not touched since November of 2016.
Meanwhile, the euro also traded well today rising to a high of 1.0873. The pair was boosted by better than expected results from the IFO survey which printed at 112.3 vs. 111 indicating that growth in Q1 of 2017 is likely to accelerate above 2% level. While consumption in Germany still remains restrained, business demand has clearly picked up and that should be welcome news to the ECB. Still, euro rally will be primarily driven by dollar flows and to that end, both fixed income and equity markets will be key today. If the buck doesn’t see a relief bounce at the start of US trade EURUSD bulls could push for a test of the 1.0900 level as the short squeeze in the pair accelerates.