Once the tax reform has come true, and the stock market has largely reflected these changes before voting, most traders are looking for the most appropriate opportunity to make money. Currently, many investors have turned their attention to the banking or technology sector that is expected to benefit most from the reforms. That is the case, but a large number of companies have already accumulated these reductions in the price of their shares. For one reason or another, the subsequent rise in US stocks will become more and more difficult, where to go?
Let's look at what will be the long-term tax reform for the dollar and the European markets. Undoubtedly, lower taxes and the repatriation of trillions of dollars from abroad will improve the US economy. From there, there will be an improvement in the country's economic performance, which will in turn drive the Fed to action. This will significantly increase the interest rate differential across countries and will support the dollar in the long run. The strong dollar in relative terms will be good for dollar-denominated investments compared to the rest of the world. But sharp consolidation will also be good news in absolute terms for European and Japanese stocks, which will benefit from their weak national currency, realizing higher exports.
The Dollar Index, which measures the strength of the US dollar against the rest of us, gives us a clear idea of what the moods are like in the dollar since the tax reform was voted. The greenback moves in a rising channel following a breakthrough in the downward trend that has been in place by mid-September. The current US dollar gives us the perfect opportunity to build a portfolio of positions against other major currencies such as GBP, EUR, CAD, NZD and AUD. With RBA and RBNZ's intentions not to change their monetary policy, we expect the difference between them and the Fed to be the most significant and hence the USD appreciation vis-à-vis AUD and NZD.
While the US stock market is trading at record levels, accumulating tax reform in the country, European indices are lagging behind their historic peaks. This gives us the perfect opportunity to take long positions of the underestimated European companies that will still reflect the positivism brought about by the adoption of the new tax law in the United States.
Jr Trader Petar Milanov
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