Over the past few weeks, the U.S. dollar has struggled despite progress on tax reform and the prospect of a Federal Reserve rate hike next month. The market may be convinced that the Federal Reserve will raise interest rates in December, but the most recent economic reports have been far from encouraging. At the same time, while the House voted to pass its tax bill this past week, the Senate is where the real battle will take place. The full Senate is not expected to vote on the bill until after the Thanksgiving holiday so there may be little reason for investors to be long dollars during the holiday week. Last minute changes that tie in the Affordable Care Act and make individual tax cuts temporary (corporate tax cuts permanent) have not been received well by Democrats and even some Republicans. The GOP cannot afford to lose more than 2 votes. They have only a 52-48 majority in the Senate and no Democrats are willing to support the bill. Also, the Senate and House still have to reconcile their bills before they are combined into a final plan that is voted on by both houses of Congress. So it will still be a long road ahead before President Trump signs tax reform into law. With the Senate going on recess, we probably won’t get any meaningful progress in the week ahead and that could contain the volatility in the greenback. Aside from the FOMC minutes, which should be dollar positive, there are no major U.S. economic reports scheduled for release.

Technically USD/JPY has a lot of support between 111.70 (the 100-day and 200-day SMA cross) and 111.90, the 38.2% Fibonacci retracement of the September to November rally. A move down to that level could be all that we see next week but if this support level is broken, the next stop could be 111.00.

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