MARKET OUTLOOK:
The main driving force of the market this week will be Donald Trump's speech in parliament on February 28, where he will talk about the future of his new tax policy. On the other hand, the second factor of market force is the election race in France, that is putting pressure on the euro. But Mari le Pan is staying behind two other candidates, with a big gap, that creates optimism for the euro.
What can we expect from Trump's tax policy?
We have 3 risks:
1. His intentions to cut tax was just elation agitation, but with facts taxes will be reduced just symbolically.
2. His promises on infrastructure development was less optimistic, when plans of its development were postponed 2 years in future and term of program development will be during 10 years. So if tax decreasing is done in the same manner, the market will accept it as negative for the dollar;
3. For tax to decrease there should be financial compensation to the budget, otherwise there will be a deficit, that U.S. will need to compensate for, by launching QE, that has a negative impact on the dollar. However, compensation may be only the introduction of dues on import from as for non-U.S., as for U.S. producers, away from U.S. borders. In that way U.S. producers will need to return their factories back to U.S. As dues, as costs with U.S. companies moving back, will create big losses, that as a result anyway will have a negative effect on the economy.
Anyway introduction of new taxes is a long process, that can take over 5-10 years, while U.S. will find budget balance. And if to look at the tax rate in Ireland, that is over 12%, it isnt clear how U.S. will make Google, which is registered there, pay taxes in U.S., because U.S. will need to decrease its tax rate to Irish level, from 35-38% to 12%.
As for me, any action of Trump's against new tax rate will have a negative influence on the dollar and in addition the market already has laid a part of optimism in dollar price on the day of Trump's win. With considering of pessimism about the rate increasing by Fed in March and also with the falling of Mari le Pen's ratings, the dollar has fewer chances for optimism.
Now the dollar is trading on the top, where at the same time gold is rebounding from the strongest resistance 1262, after that, technically, we can fall to 1193 and lower. With this, does the market suggest that we need to sell the dollar?
TECHNICAL FORECAST
EUR/USD
Main scenario:
The market is trading along a sideways trend between support 1.0565 and resistance 1.0630, where the uptrend will start as soon as the market rises above resistance level 1.0630, which will be followed by a move up to a resistance level 1.0800.
Alternative scenario:
A downtrend will start as soon as the market drops below support level 1.0565, which will be followed by a move down to a support level 1.0500 and then possiblely to 1.0400.
GBP/USD
Main scenarion:
The market is trading along a sideways trend between support 1.2360 and resistance 1.2665, where an uptrend will start as soon as the market rises above resistance level 1.2665, which will be followed by a move up to resistance level 1.3000.
Alternative scenario:
A downtrend will start as soon as the market drops below support level 1.2360, which will be followed by a move down to support level 1.2060.
GOLD
Main scenario:
Market is trading on a strong resistance level, 1262, where in case of its further break up will be followed by reaching resistance level 1306.
Alternative scenario:
A downtrend will start as soon as the market drops below support level 1240, which will be followed by a move down to support level 1220 and 1193.
U.S. CRUDE OIL
Fundamental outlook:
OPEC fulfilled its agreement on the permanent reduction of production by 90% and while the U.S. continues to increase the volume of oil rigs, it follows market to the balance and trade is going sideways between the resistance 54.70 and support 53.70. Exit from this range is possible in the case of changes of OPEC policy or with the arrival of spring (April), when fuel demand increases.
Main scenario:
The market is trading along a sideways trend between support 53.70 and resistance 54.45/70. An uptrend will start as soon as the market rises above resistance level 54.70, which will be followed by a move up to resistance level 55.45.
Alternative scenario:
A downtrend will start as soon as the market drops below support level 53.70, which will be followed by a move down to support level 52.90.
