EUR/USD – Unchanged As Debt Ceiling Looms

EUR/USD is almost unchanged as we start the new trading week, with the pair trading in the mid-1.3550 line in Monday’s European session. Negotiations in Washington over the weekend failed to produce an agreement to raise the debt ceiling, which could lead to a US sovereign debt default. In economic news, today’s only release is European Industrial Production. The important manufacturing release looked sharp, posting a gain of 1.0%. The Eurogroup finance ministers are meeting in Brussels. There are no US releases on Monday, as the markets are closed for Columbus Day.

Over the weekend, negotiations continued on Capitol Hill between the Republican and Democrat Senate leaders, but they failed to reach on agreement on the debt ceiling, which will be reached on Thursday. The parties have made little progress on the budget deadlock, as the government shutdown heads into its third week. A bipartisan proposal has been floated which would fund the government for six months and raise the debt limit until January 31. In the meantime, the impasse on Capitol Hill continues, and it’s hard to see how the markets can remain calm in this crisis-filled atmosphere.

The debt ceiling crisis is generating headlines the world over, as a US default on its financial obligations could lead to severe damage to the global economy. The US is being urged to get its act together, and quickly. The IMF has warned that the continuing uncertainty emanating out of Washington could lead to a world recession. ECB President Mario Draghi has also weighed in, saying that it was “unthinkable” that Congress would not reach an agreement on the debt ceiling.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Last week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. The bottom line? We may not see any QE moves by the Fed before the end of the year.

EUR/USD for Monday, October 14, 2013

EUR/USD October 14 at 10:25 GMT

EUR/USD 1.3561 H: 1.3569 L: 1.3545

EUR/USD Technical

• EUR/USD is rangebound in Monday trading, as it remains in the mid-1.35 range.
• The pair is facing resistance at 1.3585. This is a weak line which could see strong pressure during the day. This followed by a resistance line at 1.3649, which has held firm since early February.
• EUR/USD is receiving support at the round number of 1.35. This is followed by support at 1.3410.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 1.3410, 1.3335, 1.3162 and 1.3100
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting gains against the euro.

EUR/USD is starting the new trading week very quietly. With US markets closed on Monday, we could see the pair continue to drift. However, this could quickly change if there are reports of progress with regard to the debt ceiling crisis.

EUR/USD Fundamentals

• 5:00 Eurozone Industrial Production. Estimate 0.8%. Actual 1.0%.
• All Day – Eurogroup Meetings.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.