EUR/USD – Steady as Congress Races to Reach Debt Deal

EUR/USD is not showing much movement in Wednesday trading. The pair has posted modest gains in the European session and is trading in the mid-1.35 range. With the debt limit just one day away, high-level talks continue in Washington as Republicans and Democrats try to hammer out an agreement to raise the debt ceiling and reopen government services. In economic news, Eurozone CPI posted a gain of 1.1%, matching expectations. It’s a very light schedule in the US, with just one economic release – NAHB Housing Market Index.  

The clock continues to tick away as politicians in Washington scramble to reach an agreement on the debt limit. The US debt stands at $16.7 trillion, and the debt limit will be reached on Thursday if Congress fails to reach an agreement to raise the limit. If the limit is reached, the US treasury will be unable to pay all of the country’s bills. This could lead to the US defaulting on its debt, which could cause chaos in the domestic and international markets. The Republicans have floated proposals which would delay some provisions in President Obama’s healthcare plan. The Democrats have countered that they will only talk about health care once an agreement is reached. With both sides continuing to play hardball, the relative calm we’ve seen in the markets could quickly dissipate if the two sides cannot reach some compromise.

As the politicians in Washington continue to squabble and shoot down rival proposals to end the debt deadlock, Fitch Ratings warned on Tuesday that it could cut the US’s triple AAA rating if the crisis is not resolved. Fitch stated that it would not make any moves before early 2014, but the statement reflects growing frustration in the markets over the continuing inability of Congress to agree on a budget or the raising of the debt ceiling. The well-respected ratings agency has put the US debt on a negative watch and said that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

In the Eurozone, inflation indicators continue to point to weak inflation in the region. Eurozone CPI dropped from 1.3% to 1.1% in September, while Eurozone Core CPI edged lower, from 1.1% to 1.0%. Both readings matched the estimate. The inflation numbers point to weakening economic activity and continue to be a source of concern for Eurozone policymakers.  Meanwhile, German Chancellor Angela Merkel may have rolled to an easy victory in last month’s elections, but that has proven to be much easier than forming a government. Merkel continues to have difficulty forming a coalition, as talks with the Greens party have broken off.  This leaves the Social Democrats as her sole potential partner and the negotiations are expected to be protracted and difficult.

EUR/USD for Wednesday, October 16, 2013

EUR/USD October 16 at 10:20 GMT

EUR/USD 1.3540 H: 1.3544 L: 1.3506

EUR/USD Technical

• EUR/USD has posted slight gains in Wednesday trading.
• The pair continues to facing resistance at 1.3585. This is followed by resistance at 1.3649, which has held firm since early February.
• EUR/USD is testing support at the round number of 1.35. Will this key line hold firm? This is followed by stronger 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 is unchanged in Wednesday trading. This is reflected in what we are seeing from the pair, which is not showing strong movement. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting gains against the euro.

The pair is steady, at least for now. If there are reports of progress in the debt ceiling crisis, we could strong movement from EUR/USD during the North American session.

EUR/USD Fundamentals

• 8:00 Italian Trade Balance. Estimate 5.21B. Actual 0.96B.
• 9:00 Eurozone CPI. Estimate 1.1%. Actual 1.1%.
• 9:00 Eurozone Core CPI. Estimate 1.0%. Actual 1.0%.
• 9:00 Eurozone Trade Balance. Estimate 12.4B. Actual 12.3B.
• 14:00 US NAHB Housing Market Index. Estimate 58 points.
• 18:00 ECB President Mario Draghi Speaks.
• 18:00 US Beige Book.
• 21:30 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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