There was a word at the beginning and the word was FRS

The French pre-election passions can cause crisis more coolly than Lehman Brothers

The subject of elections in France keep to press on the market, but strengthening of euro last week was connected with depreciation of dollar. The hawk minutes of the Federal Reserve couldn't give to dollar an impetus for which bulls desperately waited, but try to prepare the markets for the steps in advance and not to work unexpectedly.

The French pre-election passions can cause crisis more coolly than Lehman Brothers in the case of Marine Le Pen's plans to remove the country from the EU according to the English scenario are realized in a referendum. By estimates of Deutsche Bank, the cumulative general assets and liabilities in the economic block reached €46 trillion by the end of 2016, and the French guarantees in this bag is about 25%. In case of disintegration of the EU about 60% of the European assets will lose hedging and will be defenseless before currency risks. Central Banks, of course, will interfere in and will protect system as it was in 2008, but it will be much more difficult to constrain consequences of disintegration of the Eurozone because of a delay and multiple legal obstacles.

The Trump press secretary statement confirmed the conjecture that the speech of the president on a performance before the Congress on February 28 will concern tax reform, though there is no final version at the moment. We listen carefully forthcoming speech despite advertizing stylistics of all performances of Trump. The market too hopes for Trump and constantly waits for a positive: tax eases, deregulation and the prospects of growth, including growth of corporate profits. Fixing of profit could begun during Trump's performance or right after one more wave of false optimism. Time of a turn of the markets will depend on Trump`s tax plan specification, if the bill of tax reform is ready – it is necessary to expect one more wave of growth of the stock market against the background of growth of dollar, if Trump say much and without details - the turn of the markets will be immediate.

As always, the stock and a debt markets act as a stress barometer. On Wednesday the Dow index for the first time during the existence was closed by 2000 points above the two hundred-day moving average. Shares are overpriced long ago and ready to collapse at any time. Trump, apparently, calmed down a little and doesn't speak about import duties any more, it means bulls on dollar can breathe freely for some time. But if the new president isn't able to press the tax eases through the Congress and its attempts to return workplaces will give start to a trade war, then a terrible panic is expected in Wall Street and for the small investor it is important to run away in time.

Investors kept to sell US dollar, having caused its fall concerning all leading currencies. Practically all assets were initially incited against dollar, but accurate orientation on terms of increase in interest rates could support him significantly. The protocol of the FRS`s last meeting didn't meet expectations, there are still no time frames for increase in interest rates in it, and at the moment FRS doesn't disturb the rate of inflation. At the same time, the statistics on sales of secondary housing in the USA for January showed ten-year peak that could level partly «disappointment» from contents of the protocol. Despite optimistic comments, the increase in a rate at a FRS meeting on March 15 is doubtful. If inflation of consumer spendings continues growth, and the level of unemployment won't grow, the rhetoric of FRS at a meeting on March 15 will be hawkish and the dollar will grow regardless of either they will raise a rate or will promise to raise in May or June.

The critical threshold of a national debt of the USA in $20,1 trillion can be reached already on March 16, 2017 when the law on the upper debt bound comes into force, and it will become a serious headache of Trump. It is interesting last Wednesday the U.S. Treasury Secretary Stephen Mnuchin said in an interview to CNBC TV channel that its department quite seriously considers a question of issue of state bonds with a repayment period in 50 and 100 years «with small percent». It can be considered as attempts to postpone debt crash if not on the next generation then for about 10-20 years.

The government of Scotland begin open discussion of holding one more referendum on independence and nowaday is absolutely sure of the decision on independence. If declare its carrying out in the next weeks as some politicians try to obtain it, the new wave of political uncertainty will have an adverse effect on pound. GDP growth of Great Britain was reviewed upward in the fourth quarter, but correction of an annual figure (to smaller value) compensated this problem. Current week the pound will be guided by movement of other leading currencies.

From other news it is possible to note that the Central bank of China actively presses on the Bitcoin exchanges, which quantity in the territory of the country it is more than somewhere in the world, and meanwhile carried out the first testing of the prototype of cryptocurrency. The authorities of the PRC don't want to explode a bitcoin's bubble and as historically all currency in the country is issued by the state, but not private players, they don't want to give this market to the companies which aren't controlled by the state. While sharp decrease in operating costs can be the unique interest in it will are reduced due to absence of intermediaries during payment process of goods or services.

Technically powerful purchases of euro can be shown at any time in the next 2-3 days. There no so far any new political events which could strike common currency. Forthcoming week the main data is GDP of the USA for the 4th quarter, inflation of consumer spendings, ISM of sectors of the industry and services. In addition to Trump, instead of NFP for February for which we wait on March 10, the performance Yellen on Friday can be a strong fundamental factor current week.

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Author: Navsher Bartash,
ForexChief Currency strategist