Renewed USD love as politicians keep looking for US debt solution
The main news, fit to print and/or otherwise digest? No new movement on the debt debacle in Washington and renewed (albeit perhaps temporary) love for the USD. The latter is of more importance as far as traders are concerned and came somewhat out of the blue and unannounced in the wake of the ZEW print this morning. Which incidentally was mixed but overall slightly better than expectations. Various reasons were fast and flowing for why the USD was getting bought across the board, not least of which was chatter around USDCHF and EURCHF stops being taken out. But honestly, if you’re to argue that the USDCHF stop hunt was solely responsible for a broad USD move across the board, then, I think you may be reaching smalls too far.
Nonetheless the move happened and even the Cable with better CPI and RPI prints (intimating higher rates sooner) was subject to losses as profit takers swooned on the initial spike and then promptly drove Betty through well known stops into 1.5950 and lower. The least affected pairs were the AUDUSD and USDJPY. While both had related moves, the magnitude of each was far too insignificant when being compared to the EURUSD and Cable. That in itself is quite telling I feel. While the lack of downside in the AUDUSD can be offset against the EURAUD move, the follow through in USDJPY is an entirely different story.
Since all this however, nothing, quite literally nothing has happened in the market.
More double talk from Washington and general confusion reigns supreme and no single market participant is any the wiser. Status quo maintained.
For what it’s worth, I feel the Americans will miss the Thursday deadline, which in itself does not automatically mean a default. An initial knee-jerk reaction lower in panic stricken markets, which very and I do mean very quickly will be followed by renewed enthusiasm while awaiting new headlines and soon to be found solutions. How this plays out in the FX market is not something I feel all too certain about. However, gun to head, I would look for USDJPY to check recent lows into the 97.00 handle.
Little else to add today folks... it’s tough out there.
Helmets on and good luck.