Markets getting edgy as US deadline nears

October 16, 2013

Gee whiz the impasse in the US is dragging on. In its 15th day now and with the deadline for the debt ceiling looming talks seem to have gone nowhere as the House Republicans basically thumb their nose at the Senate meaning that the deal trying to be brokered by Senate leaders Reid and McConnell is going nowhere.

Increasingly it looks just like the passage of the first TARP bill in late 2008 after the collapse of Lehman Brothers. At that time no one in the market thought it possible the rescue bill could get defeated yet it did and the market collapse began in earnest. So at 15 days this Government shutdown has dragged on longer than many thought possible and is now pressing right up against this week’s deadline for the debt ceiling.

This reality hit markets and also has finally hit the Fitch ratings agency which has put the US Triple A rating on negative watch – I could have told you that! But the result has been that a not terrible down day turned into a bit of a rout with the Dow down 133 points or 0.87%, the Nasdaq fell 0.56% and the S&P lost 12 points and is back below 1700 at 1698 for a loss of 0.71%. Key for me is that President Obama is not going to blink on this in the way that the Republicans thought he might (personally I think what happened in Syria, forced back-down by the Russians, has always guaranteed this) with White House spokesman Jay Carney taking the ball up calling this a “manufactured crisis”.

Europe was positive, maybe on the back of the ZEW survey in Germany or maybe just playing catch up from the day before but we can basically ignore it now. Anyway in the end the FTSE up 0.64%, DAX up 0.92% to a new all time high of 8804. The CAC up 0.78% and stocks in Milan and Madrid up 0.43% and 1.12% respectively.

Locally on the Sydney Futures Exchange the SPI 200 fell 16 points overnight to 5231 bid.

On Forex markets the big news was the rally in the Aussie Dollar which took out resistance at 0.9520 running up to 0.9547 before dropping back to 0.9511 this morning. It’s a failed break so far against the US dollar but the Aussie has outperformed the Euro (1.3516 even though the ZEW sentiment survey in Germany rose to 52.8 from 49.6) and GBP (1.5991) which suggests enduring strength overall. USDJPY was a little lower at 98.34.

The Aussie rallied up through daily resistance in the 0.9520 region yesterday and pushed up to 0.9550ish before pulling back on generalised US dollar strength. As counter-intuitive as that might be. The guys at iQuantsystems told nm to watch out for a top yesterday and so far it has come to pass. I like their approach and I would characterise it as multiple time frame pivot point analysis and they have an uncanny ability to make it work across multiple time frames.

At the moment they are short on the dailies and long on the weeklies so I thought I’d have a look at my take across both these time frames.

There is nothing to be bearish about in this chart of the daily price action for the Aussie. The JimmyR trend indicator is still pointing higher. The Aussie is still above the slow moving average, the MACD is moving up once again.

Now of course that doesn’t guarantee the rally continues but it looks okay.

On the weekly charts the MACD is trending up as is the overall price action. The Aussie has pushed through the weekly short term moving average and is now finding some resistance at the slow moving average. But the overall downtrend as characterised by the JimmyR remains intact.

So we have a daily uptrend with a weekly retracement withing an overall weekly downtrend. On balance I favour an eventual move to 97/98 cents as long as 93.50/70 holds for the Aussie.

Gold had a wild night on Commodity markets plunging to 1255 at one stage before recovering to $1281 this morning. Crude oil lost $1.28% and is at risk of breaking sharply lower through $100. Nymex crude is at $101.10 this morning. Copper is at $3.30 and the Ags dance continued with Corn down 1.37%, Wheat fell 0.94% and soybeans lost 0.54%.

On the data front today we see Chinese FDI, Westpac Leading indicators and then EU CPI and trade as the only other major out-turns. It’s all about the US and the political impasse at the moment and we know the market is threatened by a failure to meet the deadline this week but if they do get a deal done – gee whizz, stocks feel like they are going to roar.

Have a great day and good hunting

Greg

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