U.S Shut Down and Debt Ceiling Still Dominate Financial Markets - 8.10.2013

Like the previous days U.S government remains closed down and there has been no progress regarding debt ceiling so the situation is the same, although as we approach October 17 and nothing changes risk appetite is further squeezed. Last night S&P 500 dropped by 0.85% and Dow Jones Industrial Average declined by 0.90% reflecting sentiment worsening.

Still, Asian equities recovered today after yesterday’s losing trading with NIKKEI 225 advancing by 0.30% and Hang Seng gaining by 0.93%, despite disappointing Japanese Current Account and weaker Chinese HSBC Services PMI. Japan’s current account surplus stood at ¥161.5B for August while was estimated to be at ¥520.0B and was down from ¥577.3B the previous month. The Japanese Yen weakened against the US dollar and that backed the USDJPY to surge from 96.56 to 97.15. In addition to that prices bounced up amid short covering following recent sliding to fresh lows.

The US dollar index yesterday was under heavy pressure and eventually drew support line at 79.86 as budget deadlock is entering new phase after House Speaker John Boehner said that it has “no clear votes for raising debt ceiling”. That is transmitting political impasse to U.S debt ceiling issue creating possibilities that U.S could default on its obligations. Market has not priced a U.S default as most of the economists are expecting that would be resolved by end of this week, also traders would grab on any development toward resolution. Obama said yesterday that he would accept a short-term raise in borrowing limit to avoid default and perhaps that’s why the US dollar recovered back many of its Monday losses rising back to 80.00.

To close, we saw the GBPUSD climbing to resistance at 1.61 yesterday and earlier today retraced mildly at 1.6074 looking ahead for the MPC rate statement on Thursday, where no monetary changes are expected by Bank of England. The EURUSD is still fluctuating between 1.3591/1.3560 sideways zone with news coming from US being the main driver.