USD still vulnerable to debt ceiling worries
The slight firmer tone seen by the dollar on Fridayappears to have been no more than short-covering ahead of the weekend against the risk of positive news on the US political front. However, with no signs of a compromise so far, the risk is for further weakness in USD against JPY and CHF. USDJPY looks particularly vulnerable having marked a lower low of 96.86 in the European morning session. On the other hand, AUD, CAD, NZD, SEK and NOK are lagging and are actually losing out against USD this morning given their higher sensitivity to broader risk-sentiment. The main release this week will be the minutes to the Fed’s September meeting (Wednesday) as market participants seek insight into the decision not to taper. Given the dovish surprise from that meeting is now largely priced in, the risk is that the minutes show that the FOMC is still keen on tapering. However, the USD may only receive transitory support on such a release. This is because the market will be extrapolating Fed views now as a function of the length and impact of the government shutdown. Position-wise, we continue to hold short recommendations in EURUSD, GBPUSD and EURNOK. EURNOK is better bid this morning following the weaker manufacturing IP figures from Norway. However, withpositioning in NOK clean we think losses will be limited. If anything, the risk remains for another strong underlying inflation print on Thursday.
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BNP Paribas