Debt ceiling overshadows USD

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Data/Event Risks

  • EUR: A raft of eurozone data out this morning, including retail sales, consumer confidence, business confidence and unemployment. If these releases fan the flames of doubt regarding avoidance of recession, then the single currency could punch through critical support levels under 1.30.
  • USD: Only third-tier releases today, with NFIB small business confidence followed by consumer credit late on.

Idea of the Day

After last week’s encouraging gains, the dollar fell back overnight following a stark warning from the Bipartisan Policy Center that the US has less time to resolve the debt ceiling issue than is commonly realised. Indeed, it cast doubt on the ability of the US government to pay the bills much past February 15th. In coming weeks, it is likely that the dollar will periodically be shaken by fears that the US just might default. Despite the incredible acrimony between the two major parties in Washington, the market rightly assumes that politicians cannot be stupid enough to allow this to happen.

Latest FX News

  • JPY: Has retreated a full big figure against the dollar since Friday’s 2 ½ year high. Part of the explanation is yen shorts taking some profits after a heady run. Despite the yen being extremely oversold, the trend is still your friend. Yen popped briefly overnight after Finance Minister Aso claimed Japan might buy ESM bonds.
  • EUR: The bears had absolutely no success attempting to get the single currency to breach the 1.30 level in the morning session. Instead, they were forced to beat a hasty retreat as the bulls pushed it up through 1.31. As we suggested yesterday, 1.30 will be tough to break.
  • AUD: In contrast to the experience on the ground down under, the heat is off the currency at the present time. Aussie has a brief foray up through 1.05, but is now back at 1.0475.
  • GBP: Early on it seemed likely that 1.60 might be threatened but instead cable drifted higher ever so gently, eventually getting through 1.61 overnight. A decent performance, given the myriad of bearish prognostications from respected banks and asset managers in recent days.

Further reading: EUR/USD Pauses Bearish Correction Around Key Support

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