FOREX: USD - BBDXY Looking To Test Top Of Range 1215-1217

TYM6 is dealing at 113-04+, -0-03 from closing levels in today's Asia-Pac session.

• Yesterday, several (largely 2nd tier) data releases were overshadowed by today’s State of the Union address by President Trump.
• Cash US tsys edged 1-2bps cheaper after the address. President Trump’s State of the Union speech was the longest in history.
• Trump said he would move ahead with restoring his broad import taxes through other authorities. He expressed confidence foreign countries would honor their trade agreements and even predicted that the US would take in so much revenue that it would “substantially replace the modern-day system of income tax.”
• The US calendar is light today, with Fedspeak (Barkin, Schmid and Musalem) the focus.

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US President Trump's State of the Union address didn't provide much fresh policy details but focused a lot on what has been achieved in his first year back in office. This comes as the US prepares for mid-term elections later this year, with cost of living a key focus point for the US households. Via RTRS: "A Reuters/Ipsos poll found only 36% of Americans approve of his handling of the economy. Democrats hope to seize control of both houses of Congress from Republicans in November when all 435 seats are on the ballot for the House of Representatives and about a third of the 100 seats in the Senate." 

• Trump spoke about bringing inflation down (with an emphasis on lower drug prices) and mortgage rates, while noting that tariffs have helped the stock market and broader economy. He noted the recent SCOTUS decision on tariffs was unfortunate but that nearly countries want to keep existing trade deals. Trump added new tariffs may be a little more complex but won't need congressional approval (without elaborating on the details).
• Trump also stated that tariffs will help replace income taxes as time goes by, but didn't appear to speak more about potential income or corporate tax cuts. Headlines crossed before his speech: Trump To Announce Plans For New Tax Cuts Via Reconciliation, per CNBC. CNBC reports that "President Donald Trump is set to announce a new tax cut proposal during his State of the Union on Tuesday night, he said during a pre-address luncheon at the White House." This would include both personal and corporate tax cuts, per CNBC, which attended the luncheon.
• On foreign policy, Trump stated that he would prefer to solve the Iran issue through diplomacy but stated that Iran will not be allowed to have a nuclear program.
• Market reaction has been limited, with US equity futures little changed and holding marginally higher for the session at this stage. US Tsy yields are up by around 1-2bps for the session so far. 

The BBDXY has had a range today of 1187.69 - 1190.37 in the Asia-Pac session; it is currently trading around 1188, -0.15%. The USD has drifted lower as risk builds on its overnight gains and the market digests Trump's state of the Union speech. The USD continues to chop around with very little direction with the market not sure how to trade the current uncertainty. The market remains bearish overall though so the USD will be very quickly sold if they are given the excuse. Besides the tariff mess the risk of an extended war or a potential limited strike with Iran is something the market is also juggling with. On the day, it looks like 1184-1194 should continue to cover it as the market struggles for some clear direction. 

• EUR/USD -  Asian range 1.1772-1.1794, Asia is currently trading 1.1790. The pair has been consolidating just below the 1.1800 area. The price action remains constructive while it holds above the 1.1750 area. On the day, the first support remains back toward 1.1745-1.765 with the bulls looking for this area to form a base from which to reassert the trend higher. The market is very quick to return to selling USD’s but for now conviction in a direction seems pretty low. The Bulls need the price to break back above 1.1810 first and then the 1.1860 area to start seeing momentum swing back their way.
• GBP/USD - Asian range 1.3488-1.3521, Asia is currently dealing around 1.3515. GBP is trying to bounce off its 1.3450 support and the USD drifting lower is helping. This 1.3450 area looks important for the bulls and it needs to hold for any chance of a base to form. On the day, watch to see if this bounce in the USD gets any momentum. I suspect the range 1.3400-1.3600 holds for now as the market looks for direction.
• Cross asset : SPX +0.05%, Gold $5180, US 10-Year 4.045%, BBDXY 1188, Crude Oil $66.10
• Data/Events : EZ CPI, France Consumer Confidence, Germany GfK Consumer Confidence/GDP, Spain PPI

Fig 1: GBP/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P