On Monday, despite all the forecasts that if the US Senate adopts the tax reform program, nothing special has particularly happened in the foreign exchange market. Profit-taking commenced in the US equity market after a local upward spiral of shares in the financial sector.
This behavior of the market can in fact be explained by the typical application of the rule of purchase on expectations and sales. However, despite this, we continue to expect that after the final approval of the reform, which will take place after the plans of the upper and lower chambers of the Congress are brought together, when the terms of the beginning of the tax reform will become clear, the US dollar should at least keep the positions it achieved and that its high should increase against main currencies. Although, it can be observed that it is hardly necessary to expect its strong reaction, while central banks, monitoring monetary policy in the States, will also adjust their own.
It can be assumed that the certainty of what the cost of the UK's exit from the EU will be, as well as the resolution of the issue on the border with Northern Ireland, will likely provide support to the British currency, which is significantly oversold, and the Bank of England will not be able to ignore the strong growth in inflation for a long time.
The ECB will also closely follow the Fed, and if inflationary pressures in the eurozone continue, and signs of its resumption have manifested itself in the last month, then it will be forced to announce the end of the stimulus package by next year. This will become a strong supporting factor for the single European currency.
As for the Central Bank of Japan, it is a separate story and we do not yet expect significant changes in its monetary policy. If something happens, it will only be focused on internal problems and not the dynamics of the Fed's actions.
Furthermore, we do not expect a strong growth in the US dollar on the wave of an adoption of the new tax code in its final version. Although, undoubtedly it will be in demand among investors who want to invest in assets that are denominated in dollars.
Forecast of the day:
The EURUSD pair is consolidating in the range on the wave of expectations for Brexit news, as well as the final approval of the tax reform in the US. It can be assumed that if the price does not rise above 1.1875, it may fall to 1.1820, towards the lower limit of the range of 1.1820-1.1960.
The USDJPY pair is trading below the level of 112.70, pulling back after it was overcome the day before. However, if it manages to overcome it again, then, most likely, it will test the 113.35 mark for today.
