Who’s the next Fed Chair?
The U.S. dollar and stocks made a fantastic run towards the end of last week, after the Senate voted on Thursday to pass a budget resolution for 2018. The vote was interpreted as the first step towards promised tax reforms. Investors will require confirmation from the House, which needs to approvethe budget resolution in order to put together a detailed tax reform legislation. Although we might continue to see hurdles in the weeks to come, Republicans will put all their efforts into passing a tax reform package, as it is considered the most critical issue of the 2018 mid-term elections.
Investors are likely continue ignoring overstretched valuations, and keep driving equities higher for the remainder of the year, if they believe fiscal reforms will be implemented soon. It remains to be seen how the Federal Reserve will respond to fiscal change. To some extent, I think this willdepend on who will chair the Fed for the next four years. Some reports suggest that Jerome Powell is taking the lead. If Powell does get elected next February, we can expect the tightening monetary policy to remain very gradual. This means that, even though the bull market will still have legs, Powell still may not be the best candidate for the U.S. dollar.
Friday’s GDP figure is expected to show that the U.S. economy grew 2.6% in the third quarter, vs. 3.1% in Q2. While hurricanes Harvey and Irma may create some noise in the data, any bias will be considered temporary, and will likely be shrugged off by investors.
ECB’s quantitative easing future
Thursday’s European Central Bank meeting is expected to be the main risk event of the week, especially for Euro traders. EURUSD traded within a tight range of 130 pips during last week, which comes as no surprise ahead of such a significant meeting. The first key question traders need an answer tois -how much will the monthly purchase of assets be reduced in 2018? And secondly, what is the duration of the amended QE? Markets are expecting asset purchases to be cut in half, to around 30 billion Euro. However, the duration will likely have more impact on the direction of the single currency. If Mr. Draghi signaled that QE might continue running beyond December 2018, it would be interpreted as a dovish taper, thus pushing further expectations ofa rate hike and draggingthe Euro lower.
Bitcoin smashing new highs
Bitcoin has become an asset that’s hard to ignore. Despite many warnings from the likes of JP Morgan’s CEO Jamie Dimon, Nobel Prize Winner Robert Shiller, and former Fed Chair Ben Bernanke, the cryptocurrency continues to outperform all asset classes. On Friday, Bitcoin broke another key psychological level of $6,000, to post a high on Saturday of $6,180. There’s no doubt that it has become the most crowded trade in 2017,but the risks of jumping in now are very high. This is just to say that Bitcoin trading is not for the faint-hearted; however, when looking at the charts, after every new high break, Bitcoin’sprice has displayed an incredible rally. For instance, when Bitcoin broke above $2,980 in early August, the price surged 67% to $4,980 in 29 trading days. In April, we saw a similar reaction when a record high was broken, and the price rallied 120%. If such a pattern continues, then $8,000 may be the next target bulls are looking for.
