Financial markets continue to seem remarkably sanguine about the goings on in Washington
as we head into day 7 of the US shutdown, with respect to the political impasse surrounding the passing of a new budget and the raising of the debt ceiling, seemingly content to believe that an agreement will be reached in time for the October 17th debt ceiling deadline.
This perception appeared to be reinforced on Friday with reports that Republican House leader John Boehner was determined to do all he could to avert a government default
. This prompted some suggestions that he might be prepared to push a bill through to end the budget deadlock and raise the debt ceiling with the help from the moderates within his own party and all the Democrats in the chamber, in defiance of the majority of his party.
Mr Boehner appeared to pour cold water on that speculation over the weekend
by saying that he didn’t have the votes to pass an unconditional funding bill, adding to concerns that the two parties are becoming more entrenched than ever.
Mr Boehner’s comments that no votes would be held on either issue unless President Obama compromises on healthcare doesn’t really leave the Republicans much in the way of wriggle room
as the October deadline looms, especially given that President Obama is unlikely to negotiate on what is one of his flagship reforms.
On the Democrat side Treasury Secretary Jack Lew also ramped up the pressure
saying “Congress is playing with fire” saying that the US government was essentially running on fumes.
Given the distance between the two party’s relative negotiating positions someone is going to have to give an awful lot of ground, and risk accusations of caving in if we are to get past the looming deadline without an awful lot of volatility.
While Europe’s markets look set to open lower this morning
as tensions start to rise again the relative calm of financial markets so far suggests that investors believe that in the words of Winston Churchill “we can always count on the Americans to do the right thing, after they’ve tried everything else."
The nagging worry remains that while this belief may have been true in the past,
one has to question with the current dysfunctional mob on Capitol Hill, whether we can really be so sure of that anymore
. I certainly wouldn’t want to put my mortgage on it.
– last week we fell shy of this year’s high at 1.3710 and saw a bearish daily candle on Friday which suggests we could get a move back lower towards the 1.3450/60 level. Only above the 1.3710 level would argue for a move towards the 1.4000 level. A break below the 1.3450/60 area which acted as support last week would signal a move towards the 1.3320/30 level.
– last week’s bearish daily candle patterns have seen the pound break lower towards the 1.5980 area which was the launch pad for the move through 1.6000. There remains significant resistance through 1.6300 with trend line resistance at 1.6330 from the 2009 highs at 1.7045 as well as the highs this year at 1.6370 big chart points. The risk is that a sustained break below 1.5980 could suggest a move towards the lows two weeks ago at 1.5880 and the medium up trend support now comes in at 1.5865 from the 1.4815 lows.
– last week’s sharp rebound off 0.8330 and has seen us move towards the 0.8470 area, where we have down trend line resistance from the 0.8760 highs. The expectation is still to see a move towards 0.8280, but we need stay below the 0.8500 and the 200 day MA.
– the US dollar continues to drift lower but appears to be finding a modicum of support around the 97.00 level, trend line support from the February lows at 91.05. While below the daily Ichimoku cloud support of the past two weeks suggests the potential for further weakness towards the 94.00 area. We need to see a move above trend line resistance at 98.25 from the highs in September at 100.60 to stabilize and retarget the 100.00 area.
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