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DailyFX US AM Digest: US Dollar Uptrend Intact as Tax Reform Hopes Soar

DailyFX US AM Digest: US Dollar Uptrend Intact as Tax Reform Hopes Soar

Research, Research Team

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The US Dollar (via DXY Index) is looking to close the week out on a positive note thanks to progress along the fiscal policy front. The US Senate passed a budget that will eventually clear the way for President Trump’s tax plan. The specter of fiscal stimulus and increased deficits is lifting US Treasury yields across the curve, suggesting that investors are pricing in higher growth and inflation expectations. Accordingly, the US Dollar has benefited in particular against the low yielding, safe haven currencies like the Japanese Yen and the Swiss Franc.

DailyFX Economic Calendar: Friday, October 20, 2017 – North American Releases

Canadian inflation data for September released earlier today showed price pressures aren’t increasing as fast as analysts anticipate, muddying the picture for the next Bank of Canada rate hike. Odds of a 25-bps rate hike in December have dropped slightly this week, now under 50%. The Canadian Dollar fell across the board, with USD/CAD now on pace for a positive close on the week.

Later in the session more US housing data is due, but the results for September thus far have been disappointing. Even if the downtrodden figures can be attributed to Hurricanes Harvey and Irma and their resulting damage to the southeastern United States, it still means Q3’17 US GDP will likely be on the lower end of the +2-3% range (if not below it). Fed Chair Janet Yellen speaks this evening at 19:30 EDT/23:30 GMT, but that will be well-after FX markets close for the week.

DailyFX Webinar Calendar: Monday, October 23, 2017

IG Client Sentiment Index Chart of the Day: S&P 500

Learn more about the IG Client Sentiment Index on the DailyFX Sentiment page

US 500: Retail trader data shows 19.2% of traders are net-long with the ratio of traders short to long at 4.22 to 1. The percentage of traders net-long is now its highest since Oct 13 when US 500 traded near 2554.4. The number of traders net-long is 11.4% higher than yesterday and 2.4% lower from last week, while the number of traders net-short is 9.2% lower than yesterday and 9.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current US 500 price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. “DXY Index Maintaining Uptrend from September and October Swing Lows” by Christopher Vecchio, CFA, Senior Currency Strategist
  2. “Trading Outlook: USD, Euro, Cross-rates, Gold, Indices & More” by Paul Robinson, Market Analyst
  3. “S&P 500 – Slow Motion Melt-up Threatened but Remains Intact (For Now)” by Paul Robinson, Market Analyst
  4. “EUR/GBP Likely to Drift Lower on Brexit, Catalan Talks” by Nick Cawley, Analyst
  5. “USD Price Action Setups Ahead of ECB (EUR/USD)” by James Stanley, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.