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Equities muted post US tax vote

The long awaited US tax reforms were approved last night the reaction was relatively muted.

The major US indices closed slightly lower on the session even though the House of Representatives voted 224 to 201 in favour passing the tax reforms. Donald Trump pledged tax cuts on his campaign trail to get to the White House, and now one of his major promises was been agreed upon less than one year into his premiership.

US equities have been driving higher throughout 2017 as the prospect of substantial tax cuts was fuelling investor sentiment. The cooling of the US stock market when the vote on the tax cuts was passed suggests that traders are ‘buying the rumour and selling the fact’. If a major amount of money was already poured into equities in hope the tax cuts would stimulate the economy, some traders may start to wonder how much higher can they go?

President Trump described the tax reforms as ‘beautiful’, and the stocks markets clearly agree, but the US dollar has been in decline for over a week. Currency traders are calling into question how much additional growth will generate. 

At 1.30pm (UK time) the US will announce the final reading of the third-quarter GDP. The consensus is for an upward revision from 3.1% to 3.3%. The US economy is performing well, and this week saw the release of some impressive housing figures. The total home sales figure jumped to a seven year high, and the sentiment among home builders jumped to its highest level since 1999.

Gold hit a two week high as the soft US dollar made the metal more attractive. Now that the Federal Reserve have gotten the December interest rate hike out of the way, gold could see some funds flow back into it has traders won’t be scared of an interest rate hike until the late spring at the earliest.

Corporate stories have been few and far between, and as we draw nearer Christmas, news flows about individual companies are likely to be minimal. One of the more interesting sorties from yesterday was that Carillion is bring forward the start date of the new CEO, Andrew Davies. The struggling construction company is clearly desperate to get Mr Davies in the door, and start his turnaround plan.

EUR/USD – has been edging higher since mid-December and if it holds above the 100-day moving average at 1.1800 it could target 1.1961, and a move through that mark might bring 1.2000 into play.Support could be found at 1.1670.

GBP/USD – has been pushing higher since March and is above the trend line support which comes into play in the 1.3300 region. Rallies could encounter resistance at 1.3548 or 1.3659. A move below 1.3300 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 0.8861. If it can hold above 0.8861, it could target the 100-day moving average ay 0.8941. A break below 0.8861 could see it retest 0.8800.  

USD/JPY – has pushed above the 50-day moving average at 112.91, and if it holds above that metric it could target the 114.00 region, and a break thought that price might put 114.73 on the radar. Support might be found in the 112.00 area. A break below 112.00 could find support in the 111.00 region.

 

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Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.