The American political Olympus reminded itself of traders again. After a long struggle between Trump and the Congress over the abolition of Obamacare, the market no longer hoped for tax reform in the foreseeable future. Too complex were the relations of the American president, not only with congressmen-democrats but also with their fellow Republicans. As a result, the issue of fiscal stimulus was put off into a "long box", and traders switched to more pressing problems.
But, as it turned out, the "negotiability" of Trump is too early to write off. Recent events indicate that temporary alliances between Democrats and Republicans are possible, including the issue of tax reform. The first question, which united the eternal opponents, concerned the provision of assistance to the victims of Hurricane Harvey. However, this is not an indicator if the parties did not agree here as a compromise, then both parties would lose the situation. But raising the state debt limit to December 5 is a more serious signal of political understanding.
Furthermore. Donald Trump invited the leaders of the Democratic Party in Congress Nancy Pelosi and Chuck Schumer to the White House for a dinner. This meeting was completed effectively, and its results caused the market to worry especially dollar bulls. First, the Democrats announced an agreement with the US president on the DREAM program, which regulates the protection of the rights of young migrants. The subject of the discussion was the issue of building a wall with Mexico, but in general, the parties were satisfied with the compromise.
But traders were more interested in the prospect of tax reform. Surprisingly many, progress has also been noted here. Democrats called the discussion of this issue "productive", and the Speaker of the House of Representatives even set the time limits for the presentation of the new draft of the reform. He said that this will be done "during the working week after September 25". So far, no one says about the details of the reform. Let me remind you that the previous draft of the tax reform was rather laconic: the entire text fit on a sheet of A-4 format. At the moment, any new details are not disclosed. Trump only repeated his position that all the changes will be "not in favor of the rich," and also recalled the need for a 15 percent reduction in corporate tax.
The market emotionally took this news: demand for the dollar rose, and it strengthened to the whole basket of currencies. However, the reaction was of a limited nature, since all of the above statements were declarative in nature. In addition, political concessions to the Democrats can affect the position of the Republicans. By the way, not all Trump single-party members supported the proposed reform project. Therefore, the main political battles on this issue are still ahead, and their outcome can not now be predicted. Yes, and in general, yesterday's meeting can be described as "reconnaissance by battle." More or less serious about the prospects for tax reform can be said only after September 25, when we see the project itself and hear the comments of the Democrats and Republicans.
Therefore, it is reasonable to assume that the emotions about Trump's dinner with the opposition leaders will be settled very soon and the EUR/USD traders will switch again to the current problems. First of all, we are talking about the prospects for the monetary policy of the Fed.
On this "front" there is also no certainty. So, today, key data on US inflation were published. The release was slightly better than expected, an increase of 0.4% (instead of the forecasted 0.3%) on a monthly basis, and 1.9% (instead of 1.8%) in annual terms. These figures were "useless" both for the bulls of the pair EUR/USD and for the bears. On the one hand, the release above the forecast values and limited the price momentum of the pair. But on the other hand, the rate of increase in inflation still remains sluggish, and the dollar could not get any meaningful support from the CPI.
Therefore, before the September meeting of the Fed (the results of which will be announced on September 20), the pair of EUR/USD will certainly remain within the given trend. All the "trump cards" of the dollar are now quite unreliable for a cardinal mood change in the market.
From a technical point of view, the situation is not yet in favor of the bears. On the daily chart, the price is on the midline of the Bollinger Bands indicator, but above the cloud Kumo indicator Ichimoku Kinko Hyo. So far, such a formation speaks of the preservation of bullish sentiments. In the future, Ichimoku Kinko Hyo indicator can generate the following signals: when the price is fixed above 1.1965 (ie, above the Tenkan-sen line) a "Line Parade" is formed, which will open the way for the development of the northern trend. However, if the pair consolidates below 1.1815, another signal will be generated, the "Dead Cross", which signals a change in trend movement. At the moment, the price is actually at a crossroads.
Thus, despite the southern correction, the bears of the pair EUR/USD still have little weighty arguments for the break of the situation. This suggests that from the current position, one can consider long positions with a price target at resistance level 1.1965.
