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 the release of the minutes to the September FOMC meeting and onexpectations of negotiations starting to get under way in Washington. The minutes confirmed what many FOMC members havesaid in public already—that for a number of participants, the decision not to taper was a close call. At the same time, the releaseconfirmed that fiscal concerns were a factor in the Fed’s decision to delay tapering of its purchase program, and the on-goinggovernment shutdown means that it is difficult for market participants to maintain expectations for tapering in Decemberregardless of the tenor of the discussion at the September meeting. Meanwhile, price action continues to suggest investorsremain cautiously optimistic on prospects for a debt ceiling agreement in the days ahead, with US equity markets ending inpositive territory yesterday. We think a resolution to the debt ceiling impasse is increasingly likely to be a last minuteaffair, and market anxiety seems likely to build up as we head into next week. We expect to see USDJPY test lower in thedays ahead, and recommended buying 1x2x1 put butterflies in a Strategy Flash published Wednesday. We think the USD willhold up better against the EUR and GBP, and remain short EURUSD and GBPUSD as more medium-term strategic trades. Onthe data calendar today we get initial jobs claims, which are continuing to be reported through the shutdown.
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BNP Paribas