US Tax Plan could increase the service of the debt

Market Recap

Market Recap	%	Close Price
USDCAD	1.13%	1.1374
S&P500	0.51%	2575.21
GBPUSD	0.23%	1.3190
CADJPY	-0.23%	89.90
EURUSD	-0.57%	1.1784
NZDUSD	-0.96%	0.6963

Prices as of previous day instrument closing.

US indices rally continued and last Friday DJIA, S&P500 and Nasdaq Composite made another record close. DJIA gained 164.18 points or +0.71% at 23,327.22 and Nasdaq Composite rose 23.99 points or +0.36% points to 6,629.05. S&P500 closed at 2,575.21, up 13.11 points or +0.51%. 67.6% of the issues traded on NYSE, NASDAQ and AMEX are trading above their 200 daily MA. Gains of large cap stocks like MSFT (+1.16%), CSCO (+1.48%) and IBM (+0.73%) combined with Tax Plan expectations gave positive market sentiment. The CBOE Volatility Index closed below 10 at 9.97 and slid -0.8%.
In the FX market the performance of the US dollar was negative only against the British Pound. EURUSD slid after it could not rise above a significant technical level while USDJPY closed above its 3 month high. Brexit negotiation during the European Union summit helped the British Pound as EU President Donal Tusk said that trade talks will be discussed in December. The greenback rose against AUD, CAD and NZD. Canadian CPI and Retail Sales data were below the consensus while political concerns in New Zealand that could affect also the mandate of the Reserve Bank of New Zealand are the reason of the kiwi weakness. The US Dollar index closed at 93.70 and US 10 Year Note yield rose to 2.3745.
While geopolitical factors (North Korea, Iran deal, Venezuela and Catalonia among others) are shaping the most complicate geopolitical scenario since the fall of the Berlin Wall, there are other factors that are at the moment underestimated. Fiscal, Monetary and Trade factors could reshape investment strategies as their dynamics are relevant in global financial markets. US President Donal Trump has an ambitious tax plan but US debt service could increase as interest rates were kept at historical lows for too many years. When “Reaganomics” was implemented in the 80s US experienced stagflation (low growth and rising unemployment combined with inflation), and the size of the National debt was low. Uncertainty regarding the North American Trade Agreement, NAFTA, could keep volatile CAD and MXN.

Chart of the day:

United States of America DEBT/GDP Ratio and US 10 Year Note Yield

In case yields should rise and the tax cut would increase the deficit, both service of the debt and debt gdp ratio would increase.

Monday October 23, 2017 . CET Time			Forecast	Previous
14:30	US	Chicago Fed National Activity Index (Sep)
14:30	CA	Wholesale Sales (Aug; MoM)
16:00	EZ	Consumer Confidence (Oct; Preliminary)
16:30	GB	Prime Minister May to make a statement to Parliament about progress of Brexit talks

It is a quiet start on Monday in an otherwise busy week for the economic calendar. Notable data releases start in the afternoon at 14:30 CET with the Chicago Fed index. It is forecasted at -0.1 vs -0.31 in August. Eurozone’s consumer confidence is expected to rise slightly to -1.1 from -1.2. As this is the first flash release for October, a good reading could signal strength in upcoming releases. Investors are positioning themselves for the ECB rate decision on Thursday. No change is expected there but any comments regarding the process of the asset purchase programme is set to create some volatility. At 16:30 CET, Prime Minister May might make a statement to Parliament about the progress of Brexit talks.

European Stock indices are flat 1 hour after the opening and EURUSD reached an intraday low 1.1750.

Technical Analysis

EURUSD (Daily timeframe)

The pair could test soon the medium term support at 1.1665. The distance is less than 100 pips. Beneath the static support is expected another bearish with supports at 1.14. At 1.12 there is also the 200 day MA.

IBEX Index (Daily timeframe)

The index could not rise above its 200 day MA and went below the 21 day MA as well. It could test area 10,100 and then the psychological area 10,000. Beneath 10,800 is expected a selling wave. A breakout of 10,300 could bring the IBEX to test the higher side of the channel near 10,400 and only above this area buyers will be in control.

USDZAR (Daily timeframe)

The South African Rand weakness could continue as USDZAR it may test soon 14 area. Above this level USDZAR would have another bullish wave. Only below 13.30 trend following could have a break wile beneath the demand line in area 13 sellers will be in control again.

USDCHF (Daily timeframe)

The pair broke the medium term trading range and could test the 0.99 and then the parity. Beneath 0.9770 it could be considered a fake breakout and USDCHF could slide to 0.9660.

EURGBP (Daily timeframe)

The shared currency slid against the British Pound as EURGBP found resistance against its 55 MA daily. Above this level the rate could test 0.92 and the its 2017 top at 0.9340. If the pair weakness would continue it may test 0.8860 and then the 200 MA at 0.8749.

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