Today focus will shift to Trump and investor expectations of favorable tax cut framework to be released. It is obviously bullish for equities but the funny thing is that even though the equity market should be rallying just like the USD has done in the past two weeks or so, it has been a modest affair to say the least. As a matter of fact, there were no major gains after that announcement. According to analysts, the initial euphoria was short-lived as Yellen continue to hold to her interest rate guns “in light of the current uncertain inflation environment which warrant a gradual interest rate increase”. Yellen has been persistent in her view that interest rates should be raised according to Q4 2015 plan. Other Fed officials such as non-voter Dudley and dove Kashkari maintain that rates should remain low as key econometrics are still weak.
Anyhow, after yesterday’s speech, Fed Fund rate trackers increased the probability of a Dec hike to 70% boosting USD bulls. Again should Trump Tax reforms meet or even exceed investor expectations, the greenback should rally.
By USD rallying, the Yen should. These two pairs are directly correlated and that means shorting the Euro which has stagnated and failed to break above 135 over a two week period. Technically, there is a stochastic bear divergence pattern which should be a warning shot for bulls. If anything, and before Mario speech in October, I will remain look to sell with my first target at 200 period MA at 130 and then that conspicuous support base around 126-127. Stop loss should be above this week’s highs at 134.00.
Therefore, we trade as follows:
Stop Loss: above 134.00
Take Profit: 130, 127
Have a good trading day.