As the market sits waiting for the US political cogs to turn, we should try to gauge what sort of value a positive headline is worth
Trading on expectations is fine until the market prices everything in. Traders today have been glued to their screens to await all the details on this supossedly big game changing tax plan. The issue I have is that the market largely already knows what it’s getting and yet the dollar is still trading the same well worn path.
By and large we know all the details. We know that there a battle between phasing in tax cuts and cutting immediately. Today we know that the compromise is perhaps a short phase in (2019). We have an idea of the amounts of the tax cuts being proposed across the board. The big question is how much is left that we don’t know? I don’t think there’s an awful lot we don’t know right now. These discussions are tinkering around the egdes. There’s a huge risk that we USD bulls aren’t going to get the upside surprise they might be waiting for when the final agreed tax deal lands. The US political machine moves at a snails pace compared to the market’s patience. Because of this, the market is pricing and repricing at every headline and going on the PA today, as all these tax headlines come out (follow them on our twitter feed because I’m not doing a post for every one 😉 ), the market has lost interest.
To me it looks like the market is well priced for the tax deal and bar a kneejerk when it’s all finalised, I just can’t see us getting anything that’s going to send the dollar to the moom. I can just about see it doing a bunny-hop but that’s about it. Conversely, the bigger risk is that the final deal disappoints the market and we get a sharp sell off.
Long and short, I see limited upside and a bigger price move risk to the downside, and USD bulls may not get the outcome they were hoping for.