12 Oct 2013
Weekly Recap: Default clock still ticking; USD/JPY continues advance
FXstreet.com (San Francisco) - Crisis? What crisis? Markets are cheering just a small chance of a debt ceiling extension which is not even real yet: Thursday saw US indexes soaring with the Dow up more than 320 points, its biggest point gain since December 2011, while the S&P posted its second best run for this year.
The fact is that the US government is still shut down and it may reach its debt ceiling and a probable technical default in pretty much 10 days. Negotiations in between Barack Obama and the Tea Party started Thursday, after an NBC/Wall Street Journal poll showed 53% of Americans were blaming Republicans while just 31% thought the president was responsible for the fiscal impasse, forcing the opposition to sit down to negotiate.
Save havens lost their charm, and investors turned back to riskier assets particularly to commodity currencies that outperformed their European pairs. The EUR remained subdue, closing the week pretty much where it started against the greenback, as things are not much better in the EU: Mario Draghi decided to buy an umbrella for when the rain comes: past Thursday, the ECB president stated that ““the Governing Council has unanimously agreed to incorporate an easing bias that explicitly provides for further rate reductions, should the volatility in money market conditions return to the levels observed in early summer,” getting ready to halt any attempt of the common currency to move much higher.
Recently, the BK Asset Management's analyst Kathy Lien asked "if US Defaults, will the Dollar automatically drop 10%?" In a report, Lien explained that following the Standard and Poor's decision to downgrade the U.S.' sovereign debt rating a few days after Congress voted to raise the debt ceiling sell the Dollar Index down by only 1.5%. "The currency then consolidated near its lows for a few weeks before rising nearly 8% over the next 2 months," pointed Lien.
The EUR/USD performed very similar as the single currency increase by 1.5% against the Dollar and the USD/JPY dropped slightly more than 2.0%. "Once the initial shock faded, investors realized that there were few alternatives to U.S. Treasuries. So while we expect the dollar to sell-off if the U.S. defaulted on its debt, we do not expect a massive exodus or a 10% collapse in the dollar," Lien concluded.
EUR/USD closed 0.15% positive on the day at 1.3540 with around 1.80% monthly gains. "For third week in a row, the EUR/USD closed the week with a shy, little range doji that makes a louder statement than any policy maker around these days: uncertainty rules and the world economies are far from pass their particular recession woes," commented FXstreet.com's Chief Analyst Valeria Bednarik.
Technically speaking, the pair oscillates between supports aligned at 1.3461 (September 24th lows), 1.34 (August 28th highs) ahead of 1.3220 (August 26th lows) and the resistances set at 1.3564 (September 28th highs), 1.3631 (October 4th highs) followed by 1.3716 (January 30th highs).
The USD/JPY advanced for third day and reached 98.59 highs but retraced minimally on inconclusive exhaustion from rally that propelled the pair to 1.09% weekly gains and 0.38% daily advancements. The USD/JPY closed its first positive week after two negatives in a row.
Main headlines in the American session:
Canada: Unemployment rate fell to 6.9% in September
US: Reuters/Michigan Consumer Sentiment Index falls to 75.2 in October
Draghi stresses ECB ready to use all available tools to support Eurozone economy
House Republicans offer debt limit hike, end to shutdown in package with spending cuts – AP
Sparks of hope contribute to Wall Street’s gains
Gold plunges to 3-month depths
The fact is that the US government is still shut down and it may reach its debt ceiling and a probable technical default in pretty much 10 days. Negotiations in between Barack Obama and the Tea Party started Thursday, after an NBC/Wall Street Journal poll showed 53% of Americans were blaming Republicans while just 31% thought the president was responsible for the fiscal impasse, forcing the opposition to sit down to negotiate.
Save havens lost their charm, and investors turned back to riskier assets particularly to commodity currencies that outperformed their European pairs. The EUR remained subdue, closing the week pretty much where it started against the greenback, as things are not much better in the EU: Mario Draghi decided to buy an umbrella for when the rain comes: past Thursday, the ECB president stated that ““the Governing Council has unanimously agreed to incorporate an easing bias that explicitly provides for further rate reductions, should the volatility in money market conditions return to the levels observed in early summer,” getting ready to halt any attempt of the common currency to move much higher.
Recently, the BK Asset Management's analyst Kathy Lien asked "if US Defaults, will the Dollar automatically drop 10%?" In a report, Lien explained that following the Standard and Poor's decision to downgrade the U.S.' sovereign debt rating a few days after Congress voted to raise the debt ceiling sell the Dollar Index down by only 1.5%. "The currency then consolidated near its lows for a few weeks before rising nearly 8% over the next 2 months," pointed Lien.
The EUR/USD performed very similar as the single currency increase by 1.5% against the Dollar and the USD/JPY dropped slightly more than 2.0%. "Once the initial shock faded, investors realized that there were few alternatives to U.S. Treasuries. So while we expect the dollar to sell-off if the U.S. defaulted on its debt, we do not expect a massive exodus or a 10% collapse in the dollar," Lien concluded.
EUR/USD closed 0.15% positive on the day at 1.3540 with around 1.80% monthly gains. "For third week in a row, the EUR/USD closed the week with a shy, little range doji that makes a louder statement than any policy maker around these days: uncertainty rules and the world economies are far from pass their particular recession woes," commented FXstreet.com's Chief Analyst Valeria Bednarik.
Technically speaking, the pair oscillates between supports aligned at 1.3461 (September 24th lows), 1.34 (August 28th highs) ahead of 1.3220 (August 26th lows) and the resistances set at 1.3564 (September 28th highs), 1.3631 (October 4th highs) followed by 1.3716 (January 30th highs).
The USD/JPY advanced for third day and reached 98.59 highs but retraced minimally on inconclusive exhaustion from rally that propelled the pair to 1.09% weekly gains and 0.38% daily advancements. The USD/JPY closed its first positive week after two negatives in a row.
Main headlines in the American session:
Canada: Unemployment rate fell to 6.9% in September
US: Reuters/Michigan Consumer Sentiment Index falls to 75.2 in October
Draghi stresses ECB ready to use all available tools to support Eurozone economy
House Republicans offer debt limit hike, end to shutdown in package with spending cuts – AP
Sparks of hope contribute to Wall Street’s gains
Gold plunges to 3-month depths