USD/JPY Forecast: Trump better get that bill passed, else bears would make a killing!

What if Trump fails to get the bill passed?

As discussed yesterday, the bill is largely seen as a test of Trump’s legislative ability. The longer it takes for Trump to get the bill passed, the bigger the damage to his reputation as ‘Champion deal maker”.

Experts say failure to get the bill passed would mean less probability of Trump being able to deliver on his campaign promises - massive tax cuts/infrastructure spending.

Trump’s failure will derail the switch from Monetarism to Fiscalism

However, the story doesn’t end there. The real risk is if Trump starts losing credibility and the central banks would once again have to bear the responsibility of keeping markets and economy afloat. Thus, Trump’s failure would derail the switch from Monetarism to Fiscalism and that it would be a shock for the economy and markets.

Dollar-Yen then could go back all the way to 100.00 as predicted by Mr. Yen - Japan's former currency czar Eisuke Sakakibara (earlier this year).

The Fed may have remained apolitical during the run-up to the US elections and post US elections, however, I believe Yellen & Co. are silent cheerleaders of Trumpflation. This is because Trump single handedly shifted focus from central banks (Monetarism) to Fiscalism (fiscal spending) and that allowed the Fed to hike rates twice in three months.

So imagine what would happen if Trumpflation falls flat on the face. Forget about more rate hikes… the Fed could be forced to cut rates.

Technicals - Positioned for a major bearish breakdown

Weekly chart

• Take note of the ‘falling tops’ formation as shown by the trend line drawn from August 2015 high and December 2015 high. The “Trump rally” failed at the trend line hurdle in December 2016 and January 2017.
• Another ‘falling tops formation’ is seen as well, as noted by the falling trend line drawn from Dec 2016 high and March 2017 high.
• As of now, the spot is trading below the critical support of 111.60. Today’s close, if below 111.60, would signal a major bearish breakout and open doors for a sell-off in 110.00 in the short-term and 107.70 levels in the medium-term.
• Bears look more than ready to flex their muscles. The weekly DMI has confirmed bearish crossover.
• The ADX line is ready to blast higher as well, pointing to a strong trend ahead. Note that it has been sloping downwards since December… which suggests the retreat from 118.66 was largely seen as corrective in nature.

AUD/USD Forecast: Fake Breakout, bad news for Aussie bulls

Weekly chart

• The horizontal line drawn on the price chart clearly shows repeated failure to end the week above 0.77 handle. Last week we did close at 0.7702, but the follow through has been weak, given the spot is currently trading at 0.7620 levels.
• In any case, the bulls need to defend the rising lows formation (rising trend line is seen offering support around 0.7550 levels today… would slope higher to 0.7580-0.76 next week.
• The breach of the rising trend line would signal the rally from the Dec 23 low of 0.7160 has topped out.

Note - Unwinding of Trump trade and the resulting broad based weakness in the USD is unlikely to help the Aussie dollar as commodities - Iron ore, copper and other base metals are seen falling sharply if Trump fails to deliver.