EUR/USD (1.4510) House Speaker John Boehner’s budget proposal was declared ‘dead on arrival’ by Senate Majority Leader Harry Reid yesterday, with most Democrats and even a few Republicans prepared to vote against it. Today’s scheduled vote was shifted to at least until tomorrow after the CBO disclosed that the $1,200bn in government savings that the plan promises really amount to $850bn, but the Office of Management and Budget suggests that it would be anyway vetoed by the President were the vote to pass. At any rate, US AAA creditworthiness appears to be damaged beyond repair – nearly 60 percent of the economists in a Reuters poll conducted this week expect a 1-notch downgrade. One strategist said this could result in higher interest payments of $100bn per year, potentially offsetting any savings plan that Congress would ever agree on.
IMF chief Christine Lagarde wishes US lawmakers could demonstrate the courage and resolve that eurozone officials employed to solve their own fiscal crisis. Indeed, global investors searching for alternatives to the US dollar are apparently opting for the euro and they chased it higher yesterday when (because of a translation error) they thought ECB Governing Council member Christian Noyer said policymakers remain in a ‘strong vigilance’ mode. We still reckon with gains to 1.4590 and, beyond there, the single-currency could run to 1.4810/30. The first good support lies at 1.4355.
Market Bias Index
The Australian dollar’s rally this morning left its mark on the Market Bias Index. The AUD’s overvaluation bias now approaches that of the CHF.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/07/GDPBD00000188805.pdf
Deutsche Bank
Fixed Income Research – Global