FXTM Research Analyst Lukman Otunuga comments on Sterling ahead of the UK general election and Trump’s anticipated “phenomenal” tax reforms and the Dollar.
The Brexit-related jitters may return with a vengeance in the coming weeks if complications arise from the European Union government toughening their negotiation positions. Official Brexit talks have yet to commence, but the EU has already dished out fresh demands, focusing on residency rights and even limits on financial services. While Theresa May continues to suggest that a Conservative victory in the UK general elections in June may bolster her negotiating powers, the repeated demands from the European Union indicates otherwise with the bloc looking to play hardball. May is scheduled for a preliminary Brexit showdown with the President of the European Commission, Jean-Claude Juncker, and the EU’s Chief Brexit Negotiator, Michel Barnier, this evening which could be an early test. With the topic of the £50 billion Brexit bill likely to be key in the meeting, this Downing Street dinner could be one to remember.
Sterling/Dollar remains trapped in a range on the daily charts, but repeated weakness back below 1.2775 could open a path lower towards 1.2600. In an alternative scenario, a daily close above 1.2875 may open a path towards 1.3000.
Trump tax announcement in focus
A feeling of anticipation has gripped financial markets today as investors prepare for Trump’s big announcement clarifying how and when his “phenomenal” tax reforms will play out. The proposed tax cuts in the States have attributed to the impressive stock market rally with Trump expected to trim corporate income tax rate from 35% to 15%. Although there is the possibility of the Dollar stabilizing in the short term if Trump delivers, concerns still linger over the plan being light on details. Even if Trump offers markets the eagerly anticipated insight on tax reforms, recent reports from the US Congress Joint Committee on Taxation suggest that tax reform may reduce government revenues by $2 trillion over the next 10 years, which may weigh on sentiment. The possibility of corporations actually paying more from the tax cuts may encourage participants to carefully re-evaluate Trump’s tax reforms.
Commodity spotlight – Gold
The renewed appetite for risk has left safe-haven investments in the dust with Gold losing some of its safe-haven glimmers this week. Sellers have exploited the risk-on trading environment to install heavy rounds of selling on the yellow metal with prices hovering around $1260 as of writing. Although geopolitical tensions and overall uncertainty may support the yellow metal in the longer term, short term bears could reclaim control below $1260. If the Macron-inspired risk-on rally persists this week, then Gold may be exposed to further losses. From a technical standpoint, the yellow metal is coming under increasing selling pressure on the daily charts. A breakdown and daily close below $1260 should encourage a further decline towards $1240. In an alternative scenario, bulls need to keep above $1260 for a further incline back towards $1280.
