The EURUSD remained static during Thursday’s trading session, as investors remained on the fence ahead of the forthcoming European Central Bank meeting. With markets widely expecting the ECB to leave monetary policy unchanged in April, much attention may be directed towards Draghi’s tone. Although receding political risks in France and improving economic data across Europe have somewhat boosted sentiment towards the European economy, the ECB may remain on standby.
With Draghi potentially reiterating his dovish mantra on how the Eurozone still needs the ECB’s support in an effort to quell taper tantrum speculations, the Euro could find itself exposed to downside risks. Although the Central Bank may recognize that consumer and business confidence have followed a positive trajectory, emphasis could be placed on weak inflation and muted wage growth, which should support the ECB doves. While there is a possibility of Draghi playing it safe today to limit volatility, a hawkish surprise would still have the ability to elevate the EURUSD towards 1.1000.
From a technical standpoint, price stability above 1.0900 may open a path higher towards the next relevant level at 1.1000. In an alternative scenario, weakness below 1.0800 may trigger a decline towards 1.0750.
Trump’s tax reveal disappoints
A familiar feeling of disappointment lingered across the financial markets during late trading on Wednesday, after Trump’s heavily anticipated big tax announcement failed to provide the clarity investors sought. Although U.S Treasury Secretary Steven Mnuchin offered some detail by confirming that the reform plan would cut corporate tax from 35% to 15%, nothing new was brought to the table. With investors clearly disappointed and some even questioning if the “phenomenal” tax cuts will be passed through Congress, the risk-on rally decelerated.
Many queries over the tax reveal still remain unanswered, with the potential increase in the budget deficit compounding uncertainties. The possibility that Trump’s suggested tax reforms will suffer a similar fate as that of his failed healthcare reform proposal may put an end to the Trump rally, with Dollar finding itself under renewed selling pressure.
Commodity spotlight – WTI Crude
WTI Crude was under pressure on Thursday, as bears exploited the persistent oversupply concerns to install rounds of selling. Recent reports of U.S gasoline stockpiles surging by 3.4 million barrels have compounded with the downside risks, with further declines expected. Investors have started to come to the realization that there is still a global oil market glut, despite the efforts led by OPEC and Russia to stabilize the saturated markets. The growing threat of U.S Shale’s rapid resurgence destabilizing the OPEC production cut deal and potentially resulting in more oil in the already bloated market may leave WTI vulnerable to further losses. From a technical standpoint, a breakdown below $49 on WTI could open a path lower towards $47.50.