While the Dow closed lower for the eighth day in succession, its worst run since 2011, it did manage to close off the lowest levels of the day, as investors weighed up the prospect that the President’s defeat on the health care bill might spur greater efforts on the tax reform front.
This does seem a bit of a stretch given how partisan politicians can be on the subject of tax reform, even more than they are on health care reform.
The late pullback could just simply be a case that after eight days of declines some investors decided to get back into the market again as we approach the end of the month and the quarter. Quite simply, after four successive months of gains we’re probably seeing the first signs of some modest profit taking, and the President’s current political woes are providing the catalyst.
While a lot of the focus is inevitably being focussed on the extent of last week’s declines and yesterday’s losses, the fact remains that US markets still remain up around 10% from when President Trump won the keys to the White House.
Whether these declines continue is likely to be down to whether the Republicans decide to put some of their differences to one side and make an attempt to try and make some good policy.
This may mean that President Trump may have to modify his style somewhat, and add a few chapters to his book “The Art of the Deal” and work on the art of the schmooze. His belligerent style may work well on the campaign trail but on Capitol Hill it doesn’t work well at all.
For all his optimism that he can park his health care reforms and come back to them later, while moving on to tax reform, and or infrastructure spending, there is rising scepticism amongst investors that he will fare much better on this score either, however some in the market do appear to want to give him the benefit of the doubt for now.
This was reflected in the rebound off intraday lows for stocks as well as the US dollar index which hit four month lows before pulling back. US bond yields also did the same, closing lower, but off their lows, as markets continued to price out the imminent prospect of a large scale fiscal stimulus plan, but weren’t prepared to call time on it completely.
The late pullback in the US dollar was aided in no small part by the prevalence of a number of key support levels across asset classes with the 200 day MA on EURUSD, Gold and the US dollar index all rebuffing further US dollar losses.
It’s pretty slim pickings on the data front as far as Europe is concerned with the US once again the major focus with the latest US trade numbers for February and consumer confidence numbers for March due out later this afternoon.
EURUSD – the euro broke through the 1.0840 area moving up to the 1.0900 area before slipping back, with the 200 day MA providing a cap for now. A move through 1.0920 has the potential to target the 1.1000 area. Pullbacks need to hold above 1.0680 for a test of the 200 day MA to pan out.
GBPUSD – the pound continued to gain ground pushing above 1.2600 and closer to the 200 day MA and February highs at 1.2700. Support remains back near 1.2380 as well as the 1.2200 area.
EURGBP – continues to track lower while below resistance near the 0.8670 area, which is trend line resistance from the 14th March highs at 0.8785. Above 0.8730 we could head back towards the highs at the 0.8800 area.
USDJPY – found support just below the 110.20 area with a break below targeting the 108.50 handle. The US dollar needs to get back above the 111.60 area to stabilise and head back towards 112.50.
FTSE100 is expected to open 23 points higher at 7,316
DAX is expected to open 60 points higher at 12,056
CAC40 is expected to open 19 points higher at 5,036
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