The US dollar is up slightly this morning after weakening last Friday. Given the importance of the bill, US dollar trading will continue to be dominated by tax-related headlines. While expectations for the draft tax bill were high last week, the dollar sold off after the House and the Senate presented two bills containing significant differences. The impact of the tax bill on American consumers is also unclear. While Federal tax rates are set to decline for most middle-class Americans, the potential elimination of important deductions (such as SALT) means that taxes are set to rise for many living in high-tax states. This lowers the probability of the bill getting through Congress. On the other hand, proposed changes to corporate tax rates are more uniformly positive for businesses. In other news, President Trump has been touring Asia in the last few days. While the trip contained few diplomatic surprises, he reiterated his tough stance on 'unfair' trade practices.
USD/JPY is currently trading just below 113.48. EUR/USD rose last Friday and is flat this morning. The exchange rate is currently just below 1.1650. The pound is down sharply, with GBP/USD currently above 1.310.
This week’s economic data includes the consumer price index, retail sales numbers and other figures. On Tuesday, we’ll see producer prices. On Wednesday we’ll get the most important figures for the week including both retail sales and CPI numbers. On Thursday we’ll see jobless claims, capacity utilization, Philly Fed manufacturing and industrial production for October. Finally on Friday, we’ll see the NAHB Housing Market Index, and housing/building starts. Last week, jobless claims missed expectations.
As the dollar runs out of steam after the draft tax plans were published, we are downgrading the US dollar to neutral. The currency is neither overbought nor oversold today, and trades within a normal range. This is based on technical indicators when looking at a weekly chart.