US stock markets finished higher last night as the bullish sentiment continues to run through Wall Street. The first trading day of 2018 was similar to what we saw at the end 2017, whereby the Dow Jones and the NASDAQ 100 posted respectable gains and the S&P 500 reached a fresh record high. Equity traders still have high hopes for Trump’s tax reforms that will see the corporate tax rate cut from 35% to 21%, and the middles classes will receive a generous tax reduction too. President Trump is very pro-business, and seeing as he got his tax reforms approved, he will be keen to press ahead with his infrastructure spending plan. Roads, railways and bridges need to be upgraded, and construction companies, plant and machinery firms and building material suppliers could benefit if the proposal starts heading in the direction of being approved.
The demise of the US dollar continues as traders’ fear the US economy may not be lifted as much as initially anticipated on the back of the tax reforms. The corporate world is welcoming the cuts to the corporate tax rate but traders don’t necessarily see that translating into major jump in economic output. It seems that too much money was poured into the greenback in the first half of 2017, and now that is ground is being given up. Both the euro and the pound hit multi-month highs against the US dollar on account of it weakness.
Gold has been driven higher by the slide in the US dollar. The metal has enjoyed a strong rally since the middle of last month as the prospect of another interest rate hike from the Federal Reserve is low, at least for a few months. The metal is looking a bit overstretched at the moment, but seeing as it comfortably cleared the October highs, the positive trend seems steady.
The Federal Reserve will announce the minutes from the December meeting tonight at 7pm (UK time). Last month the US central bank hiked interest rates by 0.25%, it was the third hike of 2017. The minutes from the meeting will give us an idea as to what the US central banking are thinking, but seeing as the makeup of the Fed will change in the next few months, dealer may not put too much stock in the minutes.
EUR/USD – has been edging higher since early-November and if it holds above the 1.2000 mark, it could target 1.2092. Support could be found at the 1.1900 area or at 1.1815 – the 100-day moving average.
GBP/USD – has been pushing higher since March and is above the trend line support which comes into play in the 1.3340 region. Rallies could encounter resistance at 1.3600 or 1.3659. A move below 1.3340 may send the market to 1.3200.
EUR/GBP – has been edging higher since early December, and it has managed to move above the 50-day moving average at 0.8855. If it can hold above 0.8855, it could target the 100-day moving average ay 0.8928. A break below 0.8855 could see it retest 0.8800.
USD/JPY – has dipped below the 50-day moving average at 112.94, and if it remains below that metric it could target the 112.00 region, a break below 112.00 could find support in the 111.00 region. Rallies may encounter resistance at 113.75
FTSE 100 is expected to open unchanged at 7648.
DAX is expected to open 37 points higher at 12908.
CAC 40 is expected to open 6 points higher at 5294.
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