FTSE -11 points at 7375

• FTSE -11 points at 7375

• DAX +7 points at 13054

• CAC +2 points at 5338

• IBEX +12 points at 10100

US stocks rallied (S&P500 +0.82%, Dow Jones +0.80%, Nasdaq +1.30%) as House Republicans approved their version of the tax package. The debate is now moved to the Senate and there are worries that the tax bill could remain short of votes, as the Senate will be debating over its own separate plan which has significant differences. Either way, Republicans may have taken a historical step. The tax overhaul includes massive corporate tax cuts, which have been priced in the US stock prices since months. On the other hand, the overall package is estimated to cost as much as $1.4 trillion to the US government, an amount which should alert the Federal Reserve (Fed) in its way to calibrate and conduct its monetary policy. The probability of a December rate hike stands at a solid 97%.

The US dollar gave little reaction, the US 10-year yield shortly surpassed 2.37%, fell sharply to 2.35% and stabilized in between, as a major part of the tax reforms and the Fed tightening expectation are being reflected in market prices since a while.

The EURUSD saw support at its 50-day moving average (1.1748). There is a momentum loss, which could limit the topside at 1.1860 (weekly resistance) and turn the sentiment flat. The EU-US rate differential fell to new lows. Low spreads could discourage a part of long positions combined with a softer positive momentum. However, the steadiness within the European bond spreads, meaning a lower core-periphery rate differential, is appealing for risk-averse investors. As a result, the downside pressures could also be curbed by the 200-hour moving average (1.1677). German Chancellor Angela Merkel and her potential coalition partners discussed all-night and will resume talks at noon to agree on a deal. Progress has been made according to news, but key differences on risk sharing with the euro-area, carbon emission cuts and immigration issues, remain and could compromise a deal. German lawmakers may need a couple of more days before shaking hands.

Cable is edging higher for the fourth consecutive session. It has been a data-full week for pound traders. The inflation steadied at 3.0% year-on-year in October, wages growth stabilized at 2.2% versus a deterioration predicted by analysts. Retail sales came in better-than-expected as well. It is not sure if the rebound is due to the mixed bag of data or it is a correction on the Monday’s dip, as UK political developments over the weekend triggered a sell-off. The pair tested the 50-day moving average (1.3236) in Asia. It is important to keep in mind that gains could vanish in a puff of smoke if there are more tensions at the heart of Theresa May’s government. As mentioned above, the Monday open was heavy on pound, some traders may be willing to avoid a similar risk next week. Offers are eyed at 1.3250/1.3275.

The FTSE could suffer from a stronger pound. FTSE futures (-23 points) edged lower in the overnight session, hinting at a soft open on Friday.

The USDJPY is having hard time picking up momentum despite improved US yields. The pair is trading below the daily lower Bollinger band, meaning that if the volatility remains by average, the downside potential should remain capped. Support could be found at 112.27 (daily Ichimoku cloud top). The AUDJPY trades below its 200-day moving average (86.03), as a sign that there is no appetite from the carry traders.

As such, the AUDUSD traded below its lower daily Bollinger band (0.7590) as well. Iron ore futures were up by 2.54% in Sydney, but couldn't give enough support to the pair. The downside risks prevail and the 0.75 level is the next natural target for the AUDUSD-shorts.

Today, the Canadian inflation data will be in traders’ focus. The headline inflation may have slowed from 1.6% to 1.4% year-on-year in October. The loonie softened over the past month, mostly due to a dovish shift in Bank of Canada (BoC) expectations and could barely benefit from the rebound in oil prices. However, there are worries that the low correlation period between oil and the CAD could be over and a deeper correction in oil could influence the Canadian dollar negatively. Also, a soft inflation read could further revive the BoC doves and encourage more sellers to join the market. The USDCAD currently sees resistance at 1.2925 (200-day moving average). Support to September – November positive trend stands at 1.2590 (major 38.2% retrace).