Fundamental Analysis

Trump Tax Reforms Plan Boost Sentiment | RBNZ Left Interest Rate Unchanged | Euro Could Revisit 1.20

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US markets broke its four day losing streak
GOP frame work on the tax reform is here
FOMC voter, William Dudley poured cold water on the interest rate hike hopes
The RBNZ left the interest rate unchanged

The European futures and Asian markets are showing that the investors are picking up the momentum from the US markets which broke its four day losing streak. The US equity markets have been focused on the fiscal stimulus and the tax reform plans. On Wednesday, we finally have some details on the GOP frame work on the tax reform. The corporate tax rate would be reduced to 20 percent which is in-line with the market expectations because it was expected. On top of this, the plan also outlines three levels of individual tax rates and double the standard deduction. Tax reform hopes triggered the strong bull rally in the equity markets this year. The announced plan also encourages firms to bring back their overseas profits. Traders do believe this reduction in the corporate tax would help the corporates to report more healthier profits .

The dollar index have also found its new friends and moved higher from its lows as investors factored in the impact of the newly proposed tax laws. This is despite the fact that we have very little details in relation to the new tax plans. This made investors to shave some profit. Announcing tax details only means that it is a start, because it has a long way to go. It is almost certain that the plan is going to face enormous obstacles which would keep investors on their toes. Once the dust is settled, then we will be able to see a more clear picture. Remember, Trump is still struggling in repealing the Obama Care. The official FOMC voter, William Dudley has poured some cold water on the interest rate hike hopes by stating that the current interest rate is appropriate for the time being given where the inflation is.

The RBNZ left the interest rate unchanged- in line with the market expectations. The bank is keen to leave the monetary policy more accommodating for some time and it does think that the lower currency would help it to create the growth which the bank is after. The dovish stance by the RBNC drove the currency lower and we do expect the currency to stay under pressure for some time.

The Euro-dollar is suffering from profit taking as traders are still waiting on the biggest economy of the Eurozone to announce a coalition government. We do know that the profit taking could be very temporary thing because it is evidently clear that the European central bank is on path to normalise its monetary policy i.e tapering. Therefore, it is highly likely that the euro-dollar would be able to visit the 1.2092 very soon.

Author: ThinkMarketsWebsite: https://www.thinkmarkets.com/
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