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White House investigation is back to headlines

FX:EURUSD   Euro / U.S. Dollar
Asian markets gained on Tuesday dismissing weak factory data in the Chinese economy while the dollar has decided to hold up with growth, as the investigation into Russia’s meddling wth the US presidential election led to former campaign manager Manafort charged with money laundering and tax evasion, promising more intriguing data on possible POTUS collusion with Russians.

«Hunt for Russians" has long been a wandering pain for the US currency, eroding its strength time to time. This time investigators reached lobbyist Paul Manafort, former head of Trump's election campaign, charging him with conspiracy, money laundering and tax evasion. The Democrats hope that Manafort and his team members will prove to be a weak link in Moscow's involvement in the presidential election, as the long accusatory list promises many valuable details and possibly cooperation on his part.

The Korean KOSPI index rose 1% to a new high after Seoul and Beijing made concessions to each other on the deployment of US air defense in South Korea, which China regarded as a violation of the military balance in the region.

Wall Street retreated from the highs of Monday upset that US lawmakers can switch to the path of gradual changes instead of a one-time cut in the tax reform which is currently under discussion. Stock markets met the news swaying at record highs, what led to decrease to a more stable levels. The dollar witnessed some selloff for the second day in a row after the rally rested in a 3-month high at 95.00. Long positions from current levels may be unsafe, since the US currency will probably experience a more serious pullback on the White House investigation before rising again on expectations of reflation.

The US currency was also under fire on reports that Trump will opt for Jeremy Powell as next Fed fead, not quite market-friendly candidate, who is regarded the most dovish candidate among all. His most likely competitor to this position is economist John Taylor, known for his Taylor rule in the matter of the pace of money supply expansion in the economy.

The Japanese yen slightly reacted to the CB decision to keep QE unchanged, while the inflation forecast for the current fiscal year was reduced, which became a bearish signal for the yen. Markets hoped for QE cues from the board newcomer Gushi Kataoka, who last time took swipes on the absence of changes in bond-buying program. However, he limited himself to the statement that the Bank of Japan should make it clear about its commitment to stimulate economy in order to maintain the yields of debt market at a key level of 0 percent.

The Bank of Japan still hopes to achieve a target inflation rate of 2% by 2020.

Arthur Idiatulin
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This analysis is provided as general market commentary and does not constitute investment advice.
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