US Dollar under pressure as the shutdown weighs

October 3, 2013

I saw on Twitter this morning, via CNBC’s Lisa Oake, that US President Obama has told Wall Street they should be worried this time. It seems an incredible thing for the President to say and signals a definite belligerence on his part and is not a great turn for the whole Government shutdown or the next leg which sill be the debate around the increase in the US debt ceiling.

The US dollar has been the primary mover as a result of everything that is going on.  So On Forex markets the enduring shutdown seems to have had the biggest impact with the US Dollar losing ground across the board over the past 24 hours. The Euro (1.3586) is up 0.46% and the ANZ reckons it’s going to 1.40. GBP is up 0.23% to 1.6229 while USDJPY has fallen 0.63% which helped knock the Nikkei out of bed yesterday with a fall of 2%. The Aussie dollar is weaker by 0.15% at 0.9378 but this is up from the low of 0.9332. So it’s not a terrible result even though it as the only major to lose against the US dollar.

Looking at the Euro first we see that it is on a tear at the moment. Yesterday with my Business Insider Fedora and trenchcoat on and with my “press pass” firmly in hand I attended a great presentation yesterday from the ANZ Economics and Strategy Team.  In terms of FX though one of the things that stood out was a comment by the Head of Global Research Richard Yetsenga that they had a top of market forecast of 1.40.

After last night you’d have to say that the chances are high that Yetsenga and his team are going to be right.

Looking at the chart above you can see the clear step higher that Euro has taken and the support that the previous range top has provided over the past couple of weeks. The immediate target is 1.3661 then 1.3760/70 and then above this – i it can break the target becomes 1.42 on the weekly charts.

Turning to the AUDUSD we identified a box we reckon the Aussie is trading within this week and I retain that view as you can see in the 4 hour chart below. Based on the two lows over the past couple of days we can see the emergence of a short term trendline that comes in at 0.9349 today.

Other than that its a box unless either side gives way which would indicate the start of a new trend.

Turning now to the stock market it was another poor night for stocks but they recovered most of their weakness by the close with the S&P 500 rallying 14 points from the low of 1680 to close down just one point at 1694. The Nasdaq fell 0.39% however while the Nasdaq mirrored the S&P’s recovery to close down just 0.08% or 3 points.

The big news in the US was the miss by the ADP private employment survey which printed at 166, 000 rather than the expected rise of 180,000. In the grand scheme of things it’s not that much of a miss but in the absence of official data – due to the government shutdown – it’s the best the market could get. But the initial weakness gave way to a firmer close as noted above.

In Europe there was weakness in the FTSE, DAX and CAC which fell 0.34%, 0.69% and 0.92% respectively mainly on the back of the US shutdown and fears about its endurance but also likely the slightly more upbeat tone that permeated ECB Boss Mario Draghi’s post meeting (non change to policy) news conference. In Italy however stocks rallied 0.67% after Silvio Berlusconi backed down so as not to get rolled but his colleagues which meant that the Letta Government easily won the vote of confidence on the floor of Parliment.

Looking at the local market it looks increasingly like the SPI is still finding support at the slow moving average I use which is usual. It speaks of a market that is not yet ready to be an outright seller but neither ready to break higher once again.

My sense is the market needs further consolidation but is more likely than not to head lower in the weeks ahead. Not a terminal decline by any stretch but a pause in the uptrend.

On commodity markets Nymex crude rallied 1.75% to $103.83 Bbl, Gold had a big bounce of support and is up 2.69% at $1316 – reinforcing the fact that yesterday’s move looked like a position unwind. Copper bounced 4 cents as well to $3.31 lb which suggests that all these moves are really just reactions to a weaker US dollar. The Ags were quiet for a change.

On the data front in Australia today we get the AiG PSI (services) report at 9.30. The Australian economy is 75% services so this is important. It’s a holiday in China and Germany but there is a raft of Markit Services PMI’s out today which we will be watching closely as well. EU retail sales are out and raft of US data is slated for release such as jobless claims, ISM non-manufacturing, construction spending and Factory orders but with the Shutdown I only think ISM will be released.

Have a great day and good hunting.

Greg

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