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The other Trump story matters a lot more

The main story of the day is whether or not Trump care will pass the first hurdle in the House vote. If the bill passes, it is seen as a sign that Trump is in control, can pass complex legislation and then proceed to cut taxes and splashing the cash on infrastructure as promised  during the campaign.

Stock markets and the US dollar rallied on these promises:  lower taxes and infrastructure spending imply strong growth, the release of “animal spirits,” push inflation higher and consequently, the Fed would raise rates and  send the dollar on the up and up.

Should markets be worried about this?  There is a bigger storm.

Complex legislation is complicated

However, this is not as critical as the hype suggests. Complex legislation  undergoes various revisions, both in the House and in the Senate. Assuming Trump enjoys his first big win in the House, he might fail to pass the exact same bill in the Senate, where Republicans have a slim majority. Will that be a big loss for Trump?

Will that be a big loss for Trump? Not really.  Like with many other complex pieces of law, there will be a lot of back and forth.  Eventually, some form of a bill will be agreed upon and the Trump Administration can continue to other topics, some kind of fiscal stimulus that markets long for.

So, the hype, also related to the 1%+ drop in the S&P 500 on Tuesday (not such a disaster) is a bit over the top.

The bigger story: Russian collusion

It’s a busy week in Washington with Trumpcare, the supreme court nomination of Neil Gorsuch and the inquiry into the Russian involvement in the election campaign.

FBI chief Comey announced early on that his organization is investigating the Trump campaign, something that is quite earth-shattering on its own, but just an investigation at the moment.

Apart from the inquiry in Congress, the press continues  releasing data on what Trump associates have been doing. The former campaign manager Paul Manafort is under fire for his ties, as more information is being released. Also, the disgraced General Michael Flynn was not only caught lying and had to resign as National Security Adviser. More stories are coming out against him.

We know that Russia and its President Vladimir Putin were at least rooting for Trump and trying to smear Clinton. The bigger question is: did the Trump campaign actively coordinate the  DNC and Podesta leaks with Trump’s campaign? This is more than an external involvement and it could have wider implications.

According to report on CNN, some US officials say that the information suggests that Trump associates may have coordinated with the Russians.

Note all the words such as “suggests” and “may”: at least for now, we don’t have the smoking gun.

Nevertheless,  it seems that the  loop is tightening and getting closer to a point where  a heavy shadow will be cast against President Donald Trump.

President Mike Pence?

If this political earthquake materializes, the Republicans could ditch  the Donald and have him replaced by one of their own: Vice President Mike Pence. It would not be inconceivable to think that some are already waiting for the right moment.

And if Vice President Pence becomes President Pence, it could mean no infrastructure spending whatsoever. It’s  a bit murkier regarding taxes, but the priorities of the former Indiana governor are  more on social values than on economics.

For markets and for the dollar, that could be far worse than Trump losing the initial vote in a long process he could eventually win on healthcare.  If he remains in the Oval Office of course.

What do you think?

More:  Trump Report Card: D for Donald and the Dollar [Video]

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.