EURUSD
EUR/USD
Merkel’s third successive win boosted risk sentiment and therefore the single currency (while the greenback lost ground) but mostly, it seems that the re-emerging debt ceiling issue hurts again the dollar.The disappointing results from the manufacturing sectors in France, Germany and the bloc as a whole surprised investors on Monday morning, pushing the pair to the area of 1.3510 where seems to have found decent support so far. Short-term (2-year) Eurozone-US rate spreads remain within recent ranges, EUR/USD is likely to struggle to improve on the February high around 1.37. Spot looks to have overshot “fair value” based on spreads by a margin (two big figures or so) already. Either spot has to drop back or spreads need to contract more sharply to sustain the EUR rally. All eyes on Draghi's speech at 2pm so might see some choppy moves.
GBPUSD
GBP/USD
The pair looks set to remain under pressure in the upcoming sessions via the greenback, as much is happening across the pond after last week’s FOMC meeting. Key manufacturing gauges and significant Fedspeak will be in the spotlight today, amidst increasing chatter regarding the US debt ceiling. The UK current account deficit is still likely to be close to 4% of GDP in 2013 while the budget deficit will be around 7% of GDP according to the IMF. Structurally, a weaker exchange rate would help rebalance the economy while cushioning the impact of fiscal tightening. This trade-off between cyclical strength and structural weakness will likely be resolved by how successful the BoE's new forward guidance is in keeping interest rates low”.
The pair looks set to remain under pressure in the upcoming sessions via the greenback, as much is happening across the pond after last week’s FOMC meeting. Key manufacturing gauges and significant Fedspeak will be in the spotlight today, amidst increasing chatter regarding the US debt ceiling. The UK current account deficit is still likely to be close to 4% of GDP in 2013 while the budget deficit will be around 7% of GDP according to the IMF. Structurally, a weaker exchange rate would help rebalance the economy while cushioning the impact of fiscal tightening. This trade-off between cyclical strength and structural weakness will likely be resolved by how successful the BoE's new forward guidance is in keeping interest rates low”.
AUDUSD
AUD/USD
We noted that an improvement in Chinese news-flow will probably help arrest the slide in economic growth expectations for the East Asian giant. China is Australia’s largest trading partner and a critical source of demand for the country’s pivotal mining sector. That meant that stabilization in China was likely to translate into an improved the outlook for Australian exports and the business cycle overall. This in turn would prompt a supportive shift in RBA monetary policy expectations and lay the groundwork for an Aussie recovery. The case for an upside scenario seemed all the more compelling against a backdrop of highly over-extended speculative net-short positioning and we proceeded to enter long AUD/USD after an attractive technical setup presented itself.
USDJPY
USD/JPY is heading dow nwards ahead of a new US political drama of “debt-ceiling”
While Fed’s Saint Louis Fed president Bullard, mentioned that the U.S. central bank might move next month to reduce stimulus spending (i.e. we could guess that the American dollar could move higher today), things are entirely different, it seems that the re-emerging debt ceiling issue hurts again the dollar. Funding for the US government’s daily operations expires on 30 Sep, with a government shut-down possible due mostly to bitter divisions within Republicans. In addition, it is plausible that there also harsh divisions between Republicans and Democrats as well, but what traders should keep mostly in mind is that the last time the issues of debt ceiling resurfaced (August,2011) it led markets to a massive risk-aversion environment.
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