Markets took a breather overnight, in readiness for the Presidents appearance before Congress at around 9:00PM EST (1:00PM Wednesday AEDT). Fed Member Kaplan reiterated his view of March rate hike and the market reaction to U.S. durable goods was muted.
Generally tight, orderly trade across most markets overnight. Gold reversed Mondays gains to trade 1,252 overnight, still in a nice daily uptrend. The U.S. dollar erased earlier losses to trade 0.1% higher, the euro traded near $1.059 and the yen around 112.83.
A large GBP/USD sell off in the Asian session yesterday consolidated in the European open. It was announced leader of the Scottish National Party, Nicola Sturgeon, notified UK Prime Minister Theresa May of the countries intention of holding a second Scottish independent referendum. This saw the pound fall from 1.2470 to 1.2392 within an hour. Timing of the referendum is likely to be post Brexit.
During his first Joint Address to Congress, the President will communicate his vision and lay out his agenda to ‘Make America Great Again’. Should the President impress with Tax Cuts and stimulus measures and the reduction of red tape, the Dow, S&P500 and the Dollar Index should show continued strength. A disappointing suite of plans alongside more talk of border protection and immigration should see weakness in these markets.
Shorting US Equity Indices such as the Dow going into Trumps speech is the consensus trade of the week. The possibility of some weakness going into the speech may present a quick profit taking opportunity for those already short. A 13th straight day in the green going into a risk event, while not impossible, would be a surprise. During the speech, the 2,100 level may be hit in the event Trump creates a short squeeze and some panic buying – a key level which could provide some resistance.
Any mention of border tax should put pressure on the Canadian Dollar. As the US’s second largest trading partner, Canada will feel the effects of a border tax. Price action in the USD/CAD is already pointing towards concerns leading into Trumps speech.
At 11:30AM today Australia’s Current Account & Private Sector Credit will be released.
