Europe to open higher on commodity bounce

US Markets Finished Steady As Investors Await Details on the Tax Reform

Wednesday’s US session had a definite wait and see feel about it. The Dow closed marginally lower and the S&P 500 flat, as investors paused, waiting for more details on what the reconciled US tax reform could look like. While the House and the Senate have both approved separate tax reform bills, these two versions are now being combined and agreed on, before being sent to the Whitehouse for signing.  

Tax reform optimism has boosted the market since Trump was elected last year, but doubts over how stimulative the reform will actually be, have crept in over recent sessions, causing the US rally to slow and in some cases reverse.  Tech stocks have been particularly hard hit this week, dropping close to 2%. However, bargain hunters were out in force on Wednesday and the tech heavy Nasdaq closed 0.2% higher.

Dollar Retains Buying Interest

In the forex market the dollar continues to be supported, with the dollar index climbing higher on Thursday morning, for its fourth straight session. Hopes that Congress will soon push the tax bill through, in addition to optimism over Friday’s non-farm payroll and expectations of a Fed rate hike next week, have all buoyed the buck. Since the dollar bounced off the low at $92.50, the bulls have been firmly in charge, pushing the dollar index towards the key level of $94.00. A break out above here, possibly on the back of a strong jobs report on Friday, could see the dollar advance to attack 95.15 (High Oct & Nov).

USD/JPY Strengthens as Safe Haven Flows Reverse

Earlier weakness in the USD/JPY has been reversed. The dollar was trading lower versus the Japanese yen, which experienced increased inflows under its safe haven status. Investor nerves that the US government could be shut down before the weekend, were reflected in a move to the safe haven yen. Furthermore, Trump’s recognition of Jerusalem, as Israel ‘s capital magnified these safe haven flows. However, appetite for the dollar nullified this trade relatively quickly.

FTSE Futures Point Higher

Looking ahead to the UK open, the FTSE is pointing to a positive start, building on the gains from the previous session. Stronger commodity prices such as copper and oil, which are rebounding in the Asian session after a recent rout, are expected to support the FTSE on the open.

Brexit Continues to Weigh on the Pound

A softer pound could also prop up the FTSE on Thursday. Fears growing over a Brexit deal not being reached before next week’s deadline, are weighing on sentiment for sterling. Whilst the pressure is on Theresa May to find a solution to the Irish border dispute, her own political stability is also looking increasingly questionable, with suggestions she could be toppled as soon as next week.

With little in the way of influential economic data, Brexit headline are expected to drive sterling price action.

The GBPUSD is trading at $1.3384, after hitting a low on Wednesday at $1.3358. It is so far remaining above the $1.33340 region where the next support can be found. On the upside, a break above the recent high of $1.3549 could see sterling target $1.3650 (Sept high).

Opening calls

FTSE to open 14 points higher at 7362

DAX to open 34 points higher at 13,032

CAC to open 6 points higher at 5380