US Debt Ceiling Agreement in Place; Details to Come Later?

The indication that a debt deal had been struck by members of both parties in the US Congress had initially driven the value of the US dollar (USD) higher in trading yesterday morning. Highly symptomatic of the emotional negotiation process, however, the size and scope of the agreement was released separately by the Republican leadership and Democratic White House with minor discrepancies in its size. The result has been a pull away from the greenback until further details of the plan surface.

Forex Market Trends

Daily Trend no no down down up no
Weekly Trend up up down down up up
Resistance 1.4700 1.6745 80.15 0.8275 0.9080
1.4580 1.6550 79.60 0.8080 1.1080 0.8880
1.4320 1.6475 78.05 0.7850 1.0910 0.8835
Support 1.4140 1.6260 76.11 0.7730 1.0800 0.8700
1.4025 1.6140 1.0525 0.8670
1.3930 1.6000 1.0500 0.8610

Economic News

USD – USD in Decline as Debt Deal Discrepancies Come to Bear

The US dollar (USD) was seen decreasing late yesterday. The greenback had found moderate strength in the morning hours, but soon pared its gains after discrepant details about the recent debt deal were released by the White House and Congress. The value of safe-haven assets like the Swiss franc (CHF) and Japanese yen (JPY) have been buoyed by a shift away from higher yielding assets. The dollar saw significant losses to both in late trading yesterday and appears poised to take further losses this week.

News of the deal to lift the debt ceiling in the US has so far inched traders into a position of market uncertainty, which has dropped the value of the USD. With the economies of Europe and the US posting little positive news on yesterday’s calendar, the amount of pessimism surrounding the forex market, particularly in the fragile United States and euro zone, appears to have grown, further dampening the strength of the EUR, GBP, and AUD.

With a heavy news day expected today, however, traders are sure to see a return of portfolio adjustment as volatility becomes elevated. The US economy will be publishing several minor reports on personal income and spending levels for American consumers. Should today’s news disappoint, there is a possibility that more investment will get pushed towards the safety of the Swissie and yen, driving USD values lower in the process. Traders will also want to keep an eye on Swiss economic news as it may also impact risk sentiment heavily during the morning sessions.

CHF – Swiss Retail Sales on Tap

The Swiss franc (CHF) has been seen trading with largely bullish results so far this week as traders assess the risk sentiment across the region. Against the US dollar (USD) the Swissie was seen trading bullish in late trading as shifts away from the greenback, due to uncertainty about a recent deal struck over the debt ceiling in the United States, caused a stir in the foreign exchange market.

News of debt contagion spreading across the euro zone also has several economists worried that a toppling of consumer confidence may be up next. Whether Switzerland is affected by this regional tug is a matter for speculation at the moment, however. Should today’s reports on retail sales indicate a downturn in spending, and thus sentiment, there is a chance that traders will take the news to mean the Swiss franc will meet resistance in the near future.

On tap today, traders will witness the release of a highly significant report on retail sales in Switzerland at 8:15 GMT. At 8:30 GMT, the organization known as SVME will be publishing its recent findings on Switzerland’s PMI. Should the figures reveal stagnation in consumer spending and inflationary growth, we could see heftier flights to safety in the days and weeks ahead. This would likely push the value of the CHF higher over the long-haul as traders continue to flee risk in larger numbers.

AUD – Risk Aversion has the Aussie Dollar Mixed

The Australian dollar (AUD) was trading mostly weaker versus its currency counterparts yesterday after data releases have begun to shift traders back into safety. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Fears emanating from the current deal struck in Washington, DC regarding its debt ceiling has made the forex market jittery so far this week, leading many to seek safety.

This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the Swiss franc (CHF) and Japanese yen (JPY). With significant reports released this morning, forex traders are highly likely to see heavy movement by the Aussie in today’s trading hours. News out of China yesterday is also expected to hike volatility throughout the Pacific countries of Japan, New Zealand and Australia. Pacific traders should be cautious in today’s trading.

Oil – Oil Prices Holding Steady amid Market Turmoil

Crude Oil prices held steady Monday as sentiment appeared to favor a downturn in global stocks should the US debt ceiling agreement fail to produce the needed results to stave off a default. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.

Technical News

The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year’s high of 1.4940.
Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
Yen strength has returned with a vengeance. Last week’s candlestick closed with a shaved bottom indicating momentum is to the downside. This week’s opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week’s low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday’s opening gap higher could create a Harami reversal pattern which may lead slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.

The Wild Card

Yesterday the EUR/JPY briefly moved below the 109.50 support before pulling back to 110.27. Traders appear ready to test the resolve of the Japanese Ministry of Finance to intervene once again in the forex markets which could lead to further gains for the yen versus both the dollar and in the crosses. The EUR/JPY has resistance at the falling trend line from July high which comes in today at 112.15. Support is found at the pre-intervention low at 106.25.

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