Market Drivers for October 7, 2013
No deal in DC puts fresh pressure on dollar
AUD shows relative weakness on fund selling
Nikkei -1.22% Europe -1.14%
Oil $102/bbl
Gold $1312/oz.

Europe and Asia:
JPY LEI 106.5% vs. 106.9%
AUD AIG Construction 47.6 vs. 43.7
EUR Sentix 6.1 vs. 10.9

North America:
CAD Building Permits 10:00

The dollar was slightly weaker against its counterparts and especially the yen as investors remained wary of the ongoing budget battle in Washington that has resulted in a partial shutdown of the US government.

Over the weekend House Speaker John Boehner showed no sense of urgency reaffirming his position that the GOP wants President Obama to re-negotiate the Affordable Care Act as the cost of passing a clean budget appropriations bill. With the clock ticking some investors are now becoming increasingly concerned that the stalemate may drag to the debt ceiling deadline and put US in danger of default on its sovereign obligations.

As a result of the budget crisis President Obama cancelled his trip to the ASEAN summit in Brunei, but comments from the Chinese deputy finance minister echoed some of the investors concerns in Asia. The deputy finmin noted that time was running out for the US decision on raising the debt and that US should ensure the safety of Chinese investments.

Although most market participants expect US lawmakers to come to some kind of a deal before the debt ceiling deadline, the current state of intransigence is clearly starting to make some investors nervous. In FX that nervousness is most strongly expressed in USD/JPY which fell through the 97.00 barrier in European morning trade.

With only a smattering of second tier data on the calendar economic data had virtually no impact on trade today. EUR/USD rose a very modest 20 points to 1,3585 on anti-dollar sentiment while cable gained 60 points bouncing off the 1.6000 support. The Aussie was the weakest major of the night as it slipped below 9400 figure on reported fund sales from Japan.

With North American calendar barren as well, the focus will remain on Washington DC as traders look for any clues to progress. FX is likely to be driven by equity flows and if stocks begin to sell off in earnest USD/JPY could press lower testing the 96.50 level as investor sentiment continues to deteriorate.

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