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The longer the US makers dither on the debt ceiling deal, the greater the sense of anxiety in the currency markets. USD/CHF remains the primary beneficiary of safe harbor flows and the pair is coming increasingly close to the key .8000 figure as traders continue to fear the prospect of total disarray should US lawmakers fail to extend the debt ceiling before the August 2nd deadline. The US has already sustained a tremendous amount of reputational damage throughout this Congressional debate and if authorities are unable to come to a workable compromise within the next few days the selling pressure in USD/CHF could cascade into full blow panic as financial markets lose faith in United States ability to govern itself.
On the other hand, with positioning highly skewed to the downside, any prospect of a deal should trigger a strong short covering rally as markets breathe a temporary sigh of relief. With little economic data to drive trade FX will remain hostage to headline risk as all eyes turn to Washington DC.
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