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UK, European stock markets to open positive as US Senate passes the tax bill


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The FTSE and the US stock futures rallied as the US Senate finally approved the Republicans' much discussed tax reform. The S&P500 (+0.62%) and the Dow Jones (+0.91%) futures gained, the US dollar strengthened against all its G10 counterparts. The US 10-year yield jumped to 2.4187%. The market is focused on the historical tax overhaul rather than political tensions and investigations on Donald Trump. The positive trend in the US stock markets could stretch to uncharted territories.
European and British stock markets are set for a positive weekly open as well.
Safe haven assets edged lower on Monday. Gold eased to $1272.60 and the downside correction could extend toward the 200-day moving average ($1267) as investors move toward higher yielding, low risk assets such as the US treasuries.
The USDJPY advanced to 112.98 in Tokyo. The Bank of Japan (BoJ) Governor Kuroda reiterated that his team will continue conducting an extremely accommodative monetary policy. The divergence between the Federal Reserve (Fed) and the BoJs policy outlook is supportive of a further appreciation in the US dollar against the yen. The MACD (Moving Average Convergence Divergence) indicator turned positive, suggesting that the USDJPYs upside correction could gain momentum. The key resistance stands at 114.75/115.00 area.
The antipodeans slid. The Aussie (-0.24%) and the kiwi (-0.68%) weakened against the greenback. The AUDUSD trades under the pressure of uninteresting rate differential despite the recent jump in yields. The AU 2-year yield advanced to 1.78%, as the US 2-year yield traded past 2.80%. The AUDUSD's bias remains negative, as the AU/US 2-year yield spread. The pair could extend losses toward 0.7530 (lower Bollinger band) before 0.7500 level.
The single currency kicked off the week downbeat against the US dollar, the Swiss franc and the yen. Latest news revealed that European leaders are pressuring Martin Schulz to form a coalition with Angela Merkel. Schulz said that the SPD has options and that a grand coalition is not a predetermined outcome. Tensions in German politics will unlikely squeeze the euro markets. The EURUSDs short-term direction will likely be defined by the US news.
Cable eased at the start of the week, as some traders preferred realizing their profit on last weeks rally and avoid the Brexit risks as UK PM Theresa May meets the EUs Jean-Claude Juncker for lunch today. There are still pending issues such as the Brexit settlement deal, the Irish border and the EU citizens rights after the divorce. The pound could give back its recent gains if the EU/UK officials do not conclude that enough progress has been made to start discussing about the post-Brexit trade relationship. The downside risks prevail.


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Ipek Ozkardeskaya is a senior analyst at MBAex with a solid experience in the financial industry. She has strong technical background in economics and quantitative finance. Previously, she worked as a senior market analyst in London Capital Group, FX strategist in Swissquote Bank and as a client sales executive at HSBC Private Bank in Geneva. She also developed quantitative models in automatic trading as part of BCV’s Structured Products team. Ipek has a Master’s degree in Financial Engineering & Risk Management and a Bachelor degree in Economics from University of Lausanne.
 
Contributing  author since 11/09/2017

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