Political stalemate continues – USD still vulnerable to debt ceiling worries
The on-going US government shutdown and looming debt ceiling crisis should continue to dominate market focus in the week ahead. The USD strengthened against the EUR, GBP and CHF on Friday as market participants covered short positions, but with the lack of a significant development overthe weekend, the USD is vulnerable to giving back some of this ground at the start of the week. USDJPY looks particularly at risk of moving lower in the short-term given positioning and the yen’s natural tendency to benefit from deteriorating risk conditions. In contrast, we see less scope for EURUSD and GBPUSD upside now from a fundamental and positioning perspective and we think risk reward remains attractive for staying short those pairs. Meanwhile, the economic data calendar this week will be quiet, with the shutdown indefinitely delaying releases prepared by Federal government agencies. Analysts will study the minutes to the Fed’s September meeting closely for more insight into the decision not to taper, but even here the market’s capacity toextrapolate Fed views to future meetings will be limited by uncertainty over the length and impact of the government shutdown
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BNP Paribas