After a day filled with news headlines surrounding the highly-anticipated vote in the House of Representatives to repeal and replace Obamacare, Republican lawmakers decided to postpone the vote. It is now set to take place today, during the US afternoon. According to various media reports, the delay was owed to the fact that the Republicans may not have had enough support to pass the bill, and thus decided to buy themselves some extra time in an attempt to secure the necessary votes.
But that was not all. In a shock-and-awe move, at least for us, President Trump raised the stakes by declaring that should the bill get voted down today, he is prepared to leave Obamacare in place and move on to tax reform. The US dollar had been trading sideways for most of Thursday, while the debate was raging. However, it started to gain some ground during the Asian morning Friday, following Trump’s announcement that the issue of healthcare will be dealt with today, one way or another. This may be due to the fact that Trump showed his willingness to proceed with his tax plans without waiting for the healthcare approval, sending the message that tax reform is among his top priorities at the moment.
With regards to today’s vote, in case the House votes for the bill, we expect the dollar and US equities to come under buying interest, on speculation that the new administration will soon proceed with taxes as well. USD/JPY rebounded on Trump’s’ announcement after it hit support once again at 110.70 (S1). During the early European morning Friday, the rate is trading slightly below the key obstacle of 111.60 (R1), which acted as the lower bound of a sideways range that contained the price action since early January. A House approval is possible to bring the pair back above that hurdle and signal its return within the aforementioned range.
On the other hand, if the House votes against healthcare reform, it could prove negative for the aforementioned assets. Market participants may begin to doubt whether Trump will be able to deliver the tax numbers he has pledged, considering that repealing the healthcare act is one of the conditions for making that feasible. In case of a negative vote, USD/JPY is possible to come under selling interest again and perhaps aim for another test near the 110.70 (S1) support zone. A decisive dip below that support is possible to aim for the psychological round figure of 110.00 (S2).
As for the rest of today’s highlights
During the European day, we get the preliminary manufacturing and services PMIs for March from several European nations and the Eurozone as a whole. Most of these indices are expected to have ticked down, but to still remain elevated, which is likely to be another set of pleasant news for ECB policymakers, who at their latest meeting shifted to a more optimistic tone.
From the US, we get durable goods orders for February. Expectations are for both the headline and the core rates to have risen. The forecasts are supported by the nation’s ISM manufacturing PMI for the month, where the New Orders sub-index rose notably, indicating a rising pace of increase in new orders. Rising orders could prove somewhat positive for the dollar, but much of the currency’s forthcoming wave will depend on the healthcare vote. We also get the nation’s preliminary Markit manufacturing and services PMIs for March.
From Canada, we get CPI figures for February. The core rate is expected to have stayed unchanged, while no forecast is available for the core figure. Our own view is that the core rate may have ticked up, given that the nation’s Markit manufacturing PMI survey for February showed that there was a solid increase in the prices of finished products. Although a slight acceleration in core inflation could support CAD at the release, we do not expect it to lead to a material shift in the dovish tone of BoC officials. At the latest meeting, they did not appear particularly worried about inflation, but they did maintain a cautious tone with regards to exports, which continue to face competitiveness challenges as they noted. This was a hint that the strength of the Canadian dollar is muting the outlook for exports and as such, we expect BoC officials to maintain a relatively dovish tone in the foreseeable future, despite any modest progress in economic data.
USD/CAD traded higher yesterday and during Asian morning Friday, it emerged above the 1.3350 (S1) resistance (now turned into support barrier). Now the rate is headed towards the 1.3390 (R1) resistance, where investors may stand and await for the CPI data. A potential acceleration in the core CPI could encourage the bears to take advantage of that resistance and push the pair back below 1.3350 (S1). Something like that could open the way for the 1.3300 (S2) territory.
As for the speakers, we have two on the agenda: New York Fed President William Dudley and St. Louis Fed President James Bullard.
USD/JPY
Support: 110.70 (S1), 110.00 (S2), 108.80 (S3)
Resistance: 111.60 (R1), 111.90 (R2), 112.40 (R3)
USD/CAD
Support: 1.3350 (S1), 1.3300 (S2), 1.3270 (S3)
Resistance: 1.3390 (R1), 1.3425 (R2), 1.3460 (R3)
