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Rising Stocks And A Stronger Dollar To Dominate Proceedings

Published 04/12/2017, 01:12 pm
Updated 06/07/2021, 05:05 pm

Originally published by AxiTrader

The passage of the Senate's tax bill over the weekend has ushered in a bout of strength in US dollar and US stock futures and put US interest rates under upward pressure.

That combination of moves is dominating early Asia trade to start the week in forex and other markets.

Already this morning the US dollar has gained more than half a percent against the yen with USD/JPY back up at 112.74 although against the rest of Asia so far the gains have been more muted with the Korea won the biggest loser at 0.33% so far this morning.

That's left USD/KRW at 1085.90 which appears to be confirmation that this period of weakness has, or is ending. My own system generated a buy signal for USD/KRW on Friday if 1090 was to break. Naturally that didn't happen with the won stronger Friday. But a move above this level, if it comes, would signal a stronger US dollar going forward.

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Indeed my weekly system generated a buy signal for the US Dollar Index and a sell signal for the euro if last week's high, and low, give way respectively.

And as readers know I use USD/SGD as my confirmation forex price for the overall AsiaForex outlook and sentiment toward the US dollar. When viewed through that lens a break of 1.2510/15 would suggest the US dollar is on the march across and against Asia's currencies.

Turning now to economics and as I've highlighted recently the economies of Asia are mostly doing well and benefiting from the global uplift in growth.

So far this morning we've seen the Indonesian (50.4) and Malaysian (52) manufacturing PMI's both improve on the previous month's number with manufacturing in Malaysia climbing back above the 50 expansion/contraction line from last month's 48.6 print.

Along with the data we saw for the rest of the region's manufacturing base last week that is good news.

Also good news is the open of US futures which has seen S&P 500 traders mark prices up 0.64% this morning. As I highlighted above that's in response to the passage of the Senates tax bill in a 51-49 vote.

Of course the conference stage where the House and Senate bills are reconciled comes next. But I can't see a reason why Congressional Republicans wouldn't find a way to compromise and find a bill that is satisfactory to both chambers.

After all these years and with the 2018 elections looming fast over the horizon a win, is a win, is a win.

That means some of the weakness we saw last week across Asia's stock markets should - or when I look at the technicals I'd say "could" - be reversed.

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With a weaker yen the Nikkei seems best placed to benefit from the moves in US markets. It managed to hold the 20 day moving average which is the middle of the Bollinger bands last week and so could launch toward the recent range top if the Thursday/Friday highs give way. Alternatively, support remains around 22,425 - the mid Bolly band moving average.

The technicals for the China A50 or Hang Seng are less positive in many ways.

The A50 still looks biased toward the bottom of the upchannel, although the stochastic indicator is in oversold territory and looks like it is about to cross over. So that is a positive sign.

As for the Hang Seng, Friday's price action saw it drop back to test this inside channel within the overall uptrend from 2016. 28,745 has to hold to avoid another 500+ point fall.

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So I guess that's positive...as long as the inner line from mid this year holds that is.

It's a big week for global markets. Much data and of course non-farm payrolls to end the week. In the intervening period traders will be watching the Brexit negotiations between the EU and Britain, the war games on the Korean Peninsula, and of course the progress of the Mueller Russia investigation which potentially caught a very big fish in General Flynn last week.

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And of course, the President's own tweet may have caught himself in the net. His counsel says the wording, which suggested President Trump knew Flynn had lied to the FBI, was his - and NOT Trump's - error.

We'll see.

For the moment though traders are focused on tax cuts and the positives.

It's going to be a big week.

Have a great day's trading.

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