Can Tax Reform Talk Give the Dollar A Boost

Earlier in the Day:

There were no material stats released through the Asian session this morning, leaving the markets to ponder on what’s to come in the week ahead and the recent build-up of geo-political risk across key economies.

The lack of direction through the session left the markets in retreat, with the Nikkei and Hang Seng down 0.32% and 0.6% respectively at the time of writing, while the CSI300 was down 1.34%, continuing on from last Thursday’s sell-off.

The ASX200 bucked the trend in the early part of the session closing with a 0.1% gain.
There’s plenty for the markets to consider through the week including whether the U.S tax reform bill will progress and if OPEC and Russia are able to follow through on initial discussions and deliver an extension to the current agreement to the end of next year.

On the data front, manufacturing PMI numbers out of China will be in focus towards the end of the week.

With equities in retreat, the Aussie Dollar was down 0.13% at $0.7607 at the time of writing, commodity prices easing from last week’s gains. The Yen was up 0.16% to ¥111.35 against the Dollar, which was flat ahead of the European open, appetite for the Yen on the rise through the session as the equity markets hit the pause button.

The Day Ahead:

It’s going to be a relatively quiet session this morning, with no material stats scheduled for release from the Eurozone.

The good news from the weekend was that prospects of Merkel forming a grand coalition with the SDPs had improved, with talks expected to continue through to Christmas. Pressure intensified for the SDPs to step up in the interest of the nation, though it remains to be seen whether common ground can be found. Merkel may have been on a weaker footing post the German elections, but in-Party support has improved.

According to the polls, a grand coalition is the way forward as far as the nation is concerned and for there to be limited disruption to the economy, a conclusion to talks would need to be sooner rather than later. For now, the economic numbers have continued to impress and, with November prelim inflation figures due out later this week, the EUR could hold on to current levels should a pickup in input and output prices across the Eurozone’s private sector translate. ECB President Draghi had spoken recently of an expectation that inflation would pick up in the near-term. The PMI survey certainly supported that sentiment.

At the time of the report, the EUR was down just 0.05% at $1.1927, with news from Germany likely to be the key driver through the day, though should the risk off sentiment filter through to the European and Asian sessions, the EUR could see some upside through to the U.S session.

Across the Channel, it’s another quiet day on the data front, leaving the Pound in the hands of Theresa May and the Brexit negotiators. There was plenty of noise over the weekend on Ireland and EU customs borders and until there has been some sense of which direction trade talks will go, there will likely be some anxiety. The British PM is looking to up the Brexit Bill for the departure from the EU to get trade talks to the table. That could be just what the Pound needs to recover from its referendum woes, though negative sentiment towards the economic outlook and uncertainty over Theresa May’s leadership are other factors to consider.

At the time of writing, the Pound was down 0.10% at $1.3324, with noise parliament likely to be the key driver through the day.

Across the Pond, the U.S markets will be coming back from the Thanksgiving holidays and they will need to have been well rested. There’s plenty to consider for the week ahead and first up will likely be talk on tax reforms later today. Economic data out of the U.S is limited to October’s new home sales figures. The numbers are unlikely to have a material bearing on the Dollar today, with focus on Trump, inflation and economic growth figures through the week.

At the time of writing the Dollar Spot Index was down 0.05% at 92.735, with direction through the day likely to be hinged on the tax reform bill.