USD on a stronger footing, but market anxiety likely to build as we head into next week
The USD is trading on a stronger footing following reports suggesting that US politicians are at least keen to start get back to the negotiating table. Today, Treasury Secretary Lew will testify before the Senate Finance Committee (12:00 GMT), House Republicans will meet to discuss their strategy (14:00 GMT) while Senate Democrats will meet with Obama (17:45 GMT). Reports suggest House Republicans are mulling a short-term debt ceiling extension though information is scarce in terms of the length of such an extension, and more crucially what conditions such an extension comes with. Despite recent signs of optimism, we think anxiety can remain heading into the October 17 soft deadline. We think a resolution to the debt ceiling impasse is increasingly likely to be a last minute affair, and market anxiety seems likely to build up as we head into next week. We expect to see USDJPY test lower in the days ahead, and recommended buying 1x2x1 put butterflies in a Strategy Flash published Wednesday. We think the USD will hold up better against the EUR and GBP, and remain short EURUSD and GBPUSD as more medium-term strategic trades. On the data calendar today we get initial jobs claims.
Read the full report: FX Daily
BNP Paribas