This week, we take a look at potential policies in the US, and how they might impact the markets in the short-term.
The Billionaire Minimum Tax has become a bit of a hot potato in economic circles, especially as the US struggles with its ever-growing debt and the widening gap between the rich and everyone else.
This proposal suggests taxing unrealised capital gains—basically, taxing the increase in the value of assets like stocks and property even if they haven’t been sold.
The idea is to slap a 25% tax on individuals with a net worth of more than $100 million. Quite the change from the usual system, where you only get taxed when you cash in on your profits.
For instance, imagine Elon Musk’s Tesla shares jump from $120 billion to $150 billion in a year. Even if he doesn’t sell a single share, he’d still be taxed on that $30 billion increase.
The Biden administration reckons this tax could bring in $503 billion from 2025 to 2034, which they say would go towards things like childcare support and first-time homebuyer assistance.
Kamala Harris is right behind this idea, aligning herself with the broader agenda to tackle wealth inequality. A 2022 YouGov survey showed that 57% of Americans think billionaires aren’t paying their fair share, so there’s some public backing for this.
By going after the wealthiest Americans, the administration hopes to close the wealth gap a bit, while funding programmes that support middle- and lower-income households. It’s the kind of move that gets populist approval, especially from those concerned about growing inequality.
But let’s not kid ourselves—this tax faces a tough road ahead. Republicans are dead against it, and it’s not likely to sail through a divided Congress. Even when Democrats controlled both chambers, similar ideas faced pushback from within their own party.
And if it does somehow pass, there’ll probably be legal challenges galore, as taxing unrealised gains is something the US hasn’t done before. Biden’s tried including it in the budget for 2023, 2024, and 2025, but so far, no dice.
If the tax does go through, the ripple effects could be massive—and not in a good way. Wealthy investors might start selling off assets at the end of every tax year to cover their bills, which could lead to market volatility or even a crash.
Companies might avoid going public altogether to dodge the complications, which wouldn’t be great news for retail investors or innovation. And those ultra-wealthy folks? Some might end up borrowing against their assets to pay their taxes, which would increase their debt.
Worse still, we could see capital flight—where the rich move their money or businesses to countries with more favourable tax laws, shrinking the US stock market in the process.
Billionaires aren’t exactly thrilled by the idea either. Mark Cuban, during the dot-com boom, said his wealth shot up, but he didn’t have the cash on hand to pay a tax on his unrealised gains.
Hedge fund manager John Paulson went a step further, saying he’d pull his money out of US markets and stick it in cash and gold to avoid the risks of such a tax.
And while this tax is currently aimed at the ultra-wealthy—the top 0.01%—history tells us that once tax policies are in place, they tend to expand.
This has raised concerns that over time, more and more people could end up feeling the pinch, leading to worries about the long-term sustainability of the tax and its potential to throw the economy off balance.
Harris’s backing of the Billionaire Minimum Tax fits right in with her broader mission to tackle wealth inequality, but the hurdles are steep.
Even if the tax makes it past all the political, economic, and legal obstacles, it could shake up markets, private investments, and innovation in ways no one’s really prepared for yet.
With the potential tax policy looming in the background, the USDX has recently traded down from the 103.80 area, showing potential signs of weakness. However, for traders looking for confirmation that the top is in, more downside movement is needed.
The key area to watch next is 103.10, as price action around this level will be crucial. If the USDX consolidates here, it may signal further declines, potentially testing the 102.80 level.
Alternatively, should price rally and break above 104.00, it would suggest renewed strength, and traders should be cautious of a potential upward continuation.
In the EURUSD market, the pair has moved up from the 1.0800 region, showing early signs of bullish momentum. For this move to gather pace, more buying pressure is necessary to confirm that the bottom is in.
The next level to monitor is 1.08890, where consolidation would pave the way for further gains, targeting 1.09161. On the downside, if EURUSD retraces, traders should watch for a break below 1.07773 before considering long positions.
GBPUSD is also showing early signs of strength, having traded up from the 1.2960 area. The critical level ahead is 1.31128.
If price can break above this and consolidate, it opens the door for further upside potential. However, if GBPUSD pulls back, traders should focus on the 1.2900 level, where bullish price action could present an opportunity to enter long positions.
The USDJPY pair has come down from the monitored 150.50 area, and the next level to watch is 148.843. If price breaks this low, we could see more sellers step in, pushing the market lower.
Should price not break this level and instead consolidate near 150.50, it might be time to exit short positions and look for bearish price action at higher levels, such as 152.30 or even 152.90.
USDCHF has traded down from the 0.8660 area, and traders are now eyeing the 0.86057 level. If price breaks below this low with momentum, additional selling pressure is likely.
Consolidation below this level could signal that further downside is in store. However, if USDCHF begins to climb, traders should watch for bearish price action around the 0.8710 area before entering short positions again.
In the AUDUSD market, the pair has shown strength, moving up from the 0.6640 area. The next critical point is 0.6761, where consolidation could lead to more upside. If the pair retraces, traders should focus on 0.6610 for a potential bullish setup.
NZDUSD could experience some consolidation upwards before resuming its downtrend. Traders should pay attention to the 0.6130 level. If the pair consolidates here, further upward movement is possible.
On the downside, if NZDUSD drops, 0.6000 is a key level to watch for potential bullish price action.
USDCAD is trading around the 1.3800 area, and for a bearish scenario to play out, this area must hold. If price rejects this level, the next target would be 1.3880, where traders should look for bearish price action before entering short positions.
USOil has been trading downward, currently sitting around the 68.80 area. The next point to observe is 68.00, and if price fails to respect this level, it could move lower, potentially taking out previous lows. Traders should stay cautious and monitor price action closely.
Gold has recently hit a new all-time high. As price continues to climb, the next level to watch is 2760. Traders should monitor the price action at this level for signs of consolidation or further upward continuation.
The SP500 is resuming its upward movement without much retracement. Price action around 5900 will be critical. If price climbs higher, 6050 could be the next target. Traders should be mindful of any retracements and potential corrections.
Bitcoin continues to push higher without much pullback. The next key level for Bitcoin is 70068.74. If price tests this level, Bitcoin could be set for another all-time high. Traders should stay cautious, as sharp moves in cryptocurrency markets are common.
Natural Gas has broken the 2.191 low, and the next level to focus on is 2.07. If price action continues to move lower, traders should be prepared for further downside pressure.
This week, several major events could shape the market’s trajectory.
Starting on Tuesday, all eyes will be on Bank of England Governor Andrew Bailey’s speech. Traders will look for any signals on future rate management, particularly with inflationary pressures still lingering.
If Bailey hints at hawkishness, we might see GBPUSD consolidate upwards, though a more cautious tone could leave the pair in a holding pattern.
Wednesday brings the Bank of Canada’s rate statement, with a 50 bps cut anticipated, lowering rates from 4.25% to 3.75%. Since the market has already priced in this cut, traders may look to profit-take on USDCAD post-announcement. However, any deviation from expectations could lead to volatility.
On Thursday, multiple PMI reports will offer insights into both the Eurozone and the UK. Germany’s flash manufacturing PMI is forecasted at 40.7, indicating persistent contraction, while services PMI is expected to hold at 50.6.
EURUSD is likely to consolidate upward if data remains in line with these forecasts. In the UK, flash manufacturing and services PMIs are expected to show stability, with forecasts of 51.5 and 52.3, respectively, likely helping GBPUSD maintain its upward trajectory.
By Friday, Japan’s inflation story takes centre stage with Tokyo’s core CPI forecasted to drop from 2.00% to 1.70%. This drop could push the Bank of Japan to maintain its current dovish stance, potentially leading to yen weakness.
USDJPY might see downward pressure, though traders will need to be cautious of any surprises in the inflation data. Additionally, Canada’s retail sales m/m, forecasted to slow to 0.5% from 0.9%, could keep USDCAD in focus after the Bank of Canada’s statement earlier in the week.
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