EUR USD (1.4425) A vote to hike the US debt ceiling failed in Congress yesterday, 318-97, prompting discussion in the markets over the possibility of a ‘technical default’. Hedge fund managers, analysts, even House Budget Committee Chairman Paul Ryan would be open to the move which, tantamount to the ‘soft restructuring’ scheme mooted for the eurozone, we understand would be to delay the Treasury’s debt payments. Along that line, US presidential hopeful Ron Paul mentioned already last month that the US will default either way, whether intentionally or by currency devaluation. Meanwhile, the fundamental data situation in the US deteriorates. As consumer confidence and housing market figures slipped even beneath 2009 crisis levels, some economists spoke of a double-dip or a fragile economic recovery. After yesterday’s S&P/Case-Shiller Home Price Indices we shouldn’t be surprised to hear talk of a depression in the housing market. Whether it is because housing prices are still too high or because credit is still too tight, the fact is that the US residential property market struggles with a deep structural problem that may take years to unwind.
The perception that a solution has been found for securing Greece’s next funding payment has helped the euro fill the initial potential to reach 1.4440. Beyond there, we would envisage additional gains to 1.4540 and higher. Generally, the outlook is favourable as long as the 1.4130 level holds.
Market Bias IndexTM
The strongly perceived overvaluation bias in the Swiss franc diminished somewhat overnight. The other major currencies display only a negligible ranking in the Market Bias Index.
Deutsche Bank
Fixed Income Research – Global