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Video / 10 November 2017 at 9:00 GMT

From the Floor: Dollar rally sputters as Trump tax reform stuck

#SaxoStrats
  • USD dead in the water as tax reform getting stuck in Congress
  • Economic data next week key to whether USD rally can resume: Hardy
  • A close above USDJPY 114 could point to a rally for the pair next week: Hardy
  • Interest rates up, led by European rates
  • Oil headed for a fifth weekly gain, driven by Saudi uncertainty
  • Gold a touch firmer on USD weakness
  • Uranium ETF surges on news of Cameco's production cut
SAXOSTRATS Banner
 By John Acher

The US dollar rally has stalled as the Republican tax-reform effort has become increasingly mired in difficulties in Congress.

"We’re seeing the dollar dead in the water,” says Saxo Bank's head of FX strategy, John J Hardy, adding that there was really no new impetus to sell the dollar, but the rally had just gone flat. (Read also Hardy's latest FX Update here on TradingFloor.)

Senate Republicans refreshed their version of the tax reform bill on Thursday, proposing a one-year delay in Trump's corporate tax cut, while reinstating some tax breaks for middle-class wage-earners.

"I’m wondering if this tax reform becomes an albatross around the Republicans’ necks going into the 2018 elections," Hardy says.

Economic data next week -- including US October CPI and retail sales -- will be key to whether the dollar rally can resume, Hardy says.

Meanwhile, market interest rates, led by European rates, rose "quite a bit", on Thursday.

USDJPY faces a "line in the sand" at 113, whereas a close above 114 could point to a new rally for the pair next week, Hardy says.

Norwegian headline CPI, which fell to 1.2% year-on-year from the previous 1.6%,  was lower than expected, keeping the NOK under pressure, with the 9.43 are now of interest in EURNOK.

In the commodities markets, crude oil remains supported by the ongoing Saudi Arabian purge of its leadership, which has created the kind of geopolitical risk that makes traders reluctant to book profits for fear that there could be another price spike ahead, says Saxo Bank's head of commodities strategy, Ole Hansen.

"It is driving oil to a fifth weekly gain," Hansen says, adding that the focus to the downside for Brent crude is $62/barrel and then $60/b.

Gold has traded a touch firmer as the dollar has weakened on concerns that the US tax reform may be delayed due to  conflicting proposals between the Senate and the House of Repreentatives, Hansen says.

And the lack of upside momentum for gold presents a risk of long liquidation below $1,280/oz, while a break of $1,288/oz to the upside would be needed to trigger further gains, he says.

The Global Uranium ETF (URA:arcx) jumped 12% on Thursday after news that Cameco (CCO:xtse), the worlds biggest producer, will temporarily cut 10% from global output due to weak prices, Hansen says.

URA exchange-traded fund
URA ETF
 
Source: Saxo Bank

Uranium has lost 70% of its value since the Fukushima disaster in 2011. "Finally suppliers are starting to react to these very weak prices," Hansen says.


John Acher is a consulting editor at TradingFloor.

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