Trump trouble boosts EUR/USD
Make no mistake: the Trump Administration is in crisis. Convictions of two Trump deputies and an indictment of campaign finance violations are real problems that carry jail terms. This is not hype, Special Prosecutor Robert Mueller is building a legal sledgehammer. Now he can file criminal charges against Trump. Democrats and anti-Trumpists smell blood. They are blocking the advancement of Supreme Court nominee Brett Kavanaugh. Their strategy is to win the November mid-term elections to gain control of the House and the Senate. Then, they will try to impeach Trump (although they are unlikely to win over 67 Senators to remove Trump from office. House Democratic Leader Nancy Pelosi’s final act will be to impeach Trump – falling on the sword as her political career ends.
Meanwhile, the US Federal Reserve shows no signs of speeding up rate hikes, further flattening US yield curves. In Europe, the economy should rebound a marginally in Q3. We should see EUR/USD grind higher into 2019.
Weak bounce in Yen despite higher inflation
Japanese inflation numbers continue to disappoint, rendering the Bank of Japan’s 2% inflation target by 2021 less likely. July’s nominal consumer prices increased by 0.90% (prior: 0.70%) amid increasing fresh food and fuel prices, but core figures suggest a flattening of the measure, both given at +0.80% (ex. food) and +0.30% (ex. food and energy): almost unchanged since the beginning of the year (+/- 0.2 range bound). The likelihood of the BoJ adjusting its inflation forecast downward is becoming certain.
The recent decision to allow a wider fluctuation of its 10-year government bond yield will cause further yen appreciation, which is expected to reduce inflation. Government’s decision to reduce mobile wireless fees by 40%, a business contributing 0.90% of core CPI expansion, could subdue consumption. Following the announcement on Tuesday, KDDI, NTT Docomo, Rakuten and Softbank lost -5.22%, -4%, -3.59% and -1.63% respectively. Currently trading at 111.39, USD/JPY is expected to bounce back, heading along 111.50 in the short-term.
