Trump’s Failure To Repeal Obamacare Sends USD Lower

News and Events:

Is it time to run?

Over the last few weeks, Donald Trump was much quieter – especially compared to what we were used to – as its administration was gearing up for one of its key battle: repealing Obamacare. Well, it already had a bad start last week as the vote was delayed from Thursday to Friday as the Republican Party was facing division within its own rank. Investors were already suspicious as we were heading into the weekend: equities were trading sideways, the dollar and US treasury yields were going nowhere. This is now a fact, Trump has failed its very first test and forced investors to consider whether this is just a temporary setback or the start of a routine.

Looking at the equity markets this morning, investors have started to unwind Trump reflation trade on growing doubt about the government’s ability to deliver what has been promised. The Nikkei was off 1.44% and the Hang Seng slid 0.68%. US futures also dipped in negative territory with contracts on the S&P falling 0.85%. In Europe, the Euro Stoxx 600 fell 0.80% as the German DAX tumbled 0.82%.

In the coming weeks, the US political uncertainty will remain the primary driver and will weigh on the dollar and equities as investors lower their expectation for policy action. The failure to pass the healthcare reform has diminished Trump’s flexibility to pass other reform as it will be more difficult to reach a balanced budget, especially when all the other proposed reforms are project to increase expenditure.

French Elections: Uncertainties endure

It goes without saying that the French elections could have monumental repercussions for Europe, with a victory for Marine Le Pen paving the way for a Frexit Referendum. Over the weekend, the National Front President visited Vladimir Putin with many politicians, such as Jean-Luc Mélenchon strongly condemning the move. Rumours are now circulating that Russian banks are helping Le Pen to finance her campaign, a claim she vehemently rejects. Yet, in terms of international sanctions, the National Front leader continues to fight Russia’s corner.

Yes, a Le Pen election does bear all the potential of being the proverbial nail in the coffin for the single currency. However, if Brexit has taught us anything it’s that we cannot say for sure that a French exit from the EU would be a nightmare. There is a cost to exiting the union, but there is also a cost to remain.

However, for now, euro valuation and financial markets are pricing in a victory for Emmanuel Macron against Le Pen. We think it’s still too early to call a two-horse race, especially as François Fillon’s candidacy is far from over.

Article 50 this week

The wait might finally be over, with politics taking center stage in Europe. On Thursday, 29th March, Prime Minister May is likely to trigger Article 50. Once the Brexit clause is enacted, there is no way back – the UK and EU will have to begin what is likely to become a two-year (possible longer) dragged out negotiation. The immediate question is “how will the GBP react”? Outside of a natural GBP risk aversion pullback, we suspect that the GBP will continue to rally against the USD and EUR. The massive GBP devaluation on the Brexit vote and shortest G10 position in IMM data will protect the sterling from a deeper correction, while the resilient economic data and surprisingly hawkish MPC minutes will have markets increasingly pricing in a BoE rate hike. The unexpectedly hawkish tone will provide a solid backstop for selling and initiate a rebound in GBP. GBPUSD bullish recovery of 1.2110 support should continue targeting 200d MA at 1.2755.

Today’s Key Issues (time in GMT):

• mars.24 Domestic Sight Deposits CHF, last 470.9b CHF / 08:00
• Mar IFO Business Climate, exp 111,1, last 111, rev 111,1 EUR / 08:00
• Mar IFO Expectations, exp 104,3, last 104, rev 104,2 EUR / 08:00
• Mar IFO Current Assessment, exp 118,3, last 118,4 EUR / 08:00
• ECB’s Single Supervisory Mechanism Holds Annual Conference EUR / 08:30
• Mar FGV Consumer Confidence, last 81,8 BRL / 11:00
• Central Bank Weekly Economists Survey (Table) BRL / 11:25
• Mar Real Sector Confidence SA, exp 104, last 106,5 TRY / 11:30
• Mar Real Sector Confidence NSA, exp 103, last 105,3 TRY / 11:30
• Mar Capacity Utilization, exp 75,30%, last 75,40% TRY / 11:30
• ECB’s Peter Praet Speaks in Madrid EUR / 12:00
• mars.24 Bloomberg Nanos Confidence, last 59,2 CAD / 14:00
• Mar Dallas Fed Manf. Activity, exp 22, last 24,5 USD / 14:30
• Chicago Fed’s Evans, ECB’s Praet Speak in Madrid EUR / 16:45
• Fed’s Evans Speaks on Economy and Policy in Madrid USD / 17:15
• ECB’s Praet takes part in panel discussion in Madrid EUR / 17:15
• mars.26 Trade Balance Weekly, last $1437m BRL / 18:00
• Feb Tax Collections, exp 93000m, last 137392m BRL / 22:00

The Risk Today:

EUR/USD keeps on pushing higher towards key resistance given at a distance 1.0874 (08/12/2017 high). Strong support can be found at 1.0493 (22/02/2017 low). Expected to show continued increase. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD now lies in a short-term uptrend channel. There are rooms for further strength. Hourly resistance is located at 1.2570 (24/02/2017 high). Hourly support is given at 1.2324 (03/17/2017 low). Expected to show continued strength. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY continues its declined since the pair has failed to break key resistance given at 115.62 (19/01/2016 high). The pair is heading lower. Hourly resistance can be located at 113.57 (16/03/2017 high). We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is declining. Hourly support is given at 0.9862 (31/01/2017 low). Key resistance can be found at a distance at 1.0344 (15/12/2016 high). Expected to show continued weakness. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.