The US Senate stumbles again as Thursdays debt ceiling deadline looms

Dented risk sentiment after the Senate announcement sends Aud, Kiwi lower. Markets likely to remain very choppy.

The late session announcement that US Senate negotiations had again stalled saw the US$ give up some of its previous gains. The Aud and Kiwi came off their highs while commodities have turned around sharply from their lows. Today’s economic data leads off with the NZ CPI, Australian WBC Leading Index and China FDI. Later on sees the EU CPI and UK Jobs numbers, although all focus will remain on Washington.

EUR/USD: 1.3519

The late session Senate announcement has see the dollar give up some ground and it looks as though it is going to remain pretty choppy. Overall though the technical levles to watch remain pretty much unchanged, as per below.

The Euro today fell back below 1.3500 to a low of 1.3480 against a generally firmer dollar, which was lifted by hopes that a deal to reopen the U.S. government and raise the borrowing limit could be close at hand. Nothing has been finalised yet, although the Senate Leader Harry Reid, a Democrat, said he and his Republican counterpart had made “tremendous progress” in talks. He went on to suggest a deal could come as early as Tuesday. If nothing eventuates, we could then see a turnaround in the dollars fortunes as the Thursday debt ceiling deadline approaches. Another matter that would keep the dollar from making further gains would be the likelihood that the Fed would be unable to begin tapering in the next month as the economy begins to slow in the face of further inaction by the government.

Earlier data, which was more or less ignored, saw the German ZEW economic sentiment index rise by 52.8 ( 49.6 exp)

The charts are showing that the Euro has increasing downside momentum, but the strong support at 1.3480/00 is holding, and until any deal is put together in Washington it is difficult to see the dollar making any further significant gains. Below 1.3480 though would see a decline towards 1.3437 (38.2% of 1.3144/ 1.3645 under which it would head to 1.3400 and on towards 1.3370, where it sat before last month’s surprise FOMC decision by the Fed to sit on their hands and to delay tapering.

On the topside, which could come back into focus if the current standoff continues, we would see a reverse back to short term resistance, now at 1.3520 and again at 1.3570. 1.3600 has proved a hurdle too many so far this week, but if taken out, the Euro would head on towards 1.3645 and then 1.3660 (4 Feb high) and will provide offers ahead of the major topside target of 1.3710 (1 Feb. high). Beyond there would see further sellers at 1.3760 and 1.3810 (61.8% of 1.4939/1.2041) which currently remains some way off.

For the coming session I suspect we hang close to current levels, although the hourlies are a little oversold and we could see a squeeze to slightly higher levels, which I would use as a sell opportunity for the greater move lower that is suggested by the momentum in the longer term charts. Use 1.3540/1.3480 as an initial guide.

Economic data highlights will include:

EU CPI, Trade Balance, US Beige Book

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EUR/USD: 4 hour

USD/JPY: 98.40

Usd/Jpy has been reasonably stable and somewhat sidelined today as the action has gone on around it.

Technically little has changed, in that the 100DMA is still acting as a magnet and after having tested the top of the daily cloud in reaching a high of 98.69, it found this a hurdle too many to overcome and is now back under 98.50.

The indicators are a bit mixed and while the dailies do point higher, the shorter term charts do not suggest that we are going to move significantly in the coming session. If wrong, then above 98.70 would see a run to 99.00 and then on towards 100.00 (20 Sept high: 99.66) which will prove a tough hurdle ahead of the 11 Sept high at 100.61.

The downside currently looks well supported at 98.25 (daily cloud base), 98.10 (23.6% of 96.56/98.58), where it bottomed out on Monday (low: 98.09) and below there at 97.80 (38.2%) and 97.33 (61.8%). Under 97.00 would see a return to last week’s lows at 96.55, which at this stage looks unlikely.

The room for movement currently looks a bit limited so use 98.10/70 as a guide and possibly go with a break of either side. Overall it looks as though the price action could be a little choppy and directionless again.

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USD/JPY: 4 hour

GBP/USD: 1.5992

Cable has had a choppy day and has so far held within the 1.59/1.60 range but currently sits at the top end after the Senate decided to again suspend negotiations until there is some common ground. Earlier in the session, the UK data saw the September CPI unchanged at 2.7% yy, while core CPI rose to 2.2%. PPI input dropped to 1.1% yy, PPI output dropped to 1.2% yy. Today’s focus will be on the UK Jobs data.

Technically there is not too much different from yesterday and on the topside, 1.6000/20 will again see sellers, above which, there is minor resistance at 1.6030 and 1.6060 and more substantial resistance at 1.6080 (daily Tenkan).

On the downside, Cable bottomed out today at minor support at 1.5915. If we can get below there, 1.5900 and 1.5880 will see bids ahead of the 50% pivot of the move from 1.5426/1.6260 at 1.5840. Below this would see an acceleration towards 1.5770, but not likely yet.

The immediate pressure looks to be a bit higher and a run towards 1.6030 would not surprise. However with the dailies pointing lower, I think that as with the Euro, we will eventually see Cable again come under pressure and near term rallies may prove to be good sell opportunities.

Economic data highlights will include:

UK Unemployment Data

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GBP/USD: 4 hour

USD/CHF: 0.9135

The Dollar made some good ground in reaching 0.9177 before turning around and dropping sharply later in the session to 0.9125 after the Senate again put all negotiations on hold.

The short term charts suggest we are in for some more choppy trade, not too far removed from currently levels, but the dailies do still point higher down the track and short term dips could be good buying opportunities.

Points to watch are at 0.9100 and then at 0.9060, below which would suggest a deeper move towards 0.9000.

On the topside, the dollar needs to regain 0.9140 and then, more importantly, today’s session high at 0.9177 in order to head into resistance firstly at 0.9200 and then at around 0.9240, which as I have said before, is where I would square up current long dollar positions.

In the meantime, prepare for a choppy directionless session, waiting for the sound bites to come out of Washington.

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USD/CHF: 4 hour

AUD/USD: 0.9510

The Aud is retreating sharply from its highs after the announcement from the Senate that negotiations are going nowhere fast and it currently sits back at close to 0.9500, having earlier reached 0.9546. The RBA minutes had earlier done little to hurt the Aud and although they maintained their easing bias, they did appear slightly less dovish than had previously been the case.

A choppy session looks to be in store today and some further downside momentum would not now surprise. Use 0.9500 as a pivot, but I suspect we could see a dip towards 0.9485 and possibly to as low as 0.9450, although that may be a stretch too far. If we do get down here, then further losses could take the Aud towards 0.9415, although I don’t think so and would prefer to be a buyer down there should we see it down here.

On the topside 0.9530 and then more importantly 0.9545 are now the first hurdles to be overcome. Beyond there would see an accelerated run towards 0.9600 but until there is something positive to come out of Washington, it is hard to see it heading too close to these higher levels.

For now I think we should use 0.9475/0.9545 as a guide, and on the day I would be mildly tempted to sell rallies, although in the longer term the long term view that we will eventually see 0.9700 has not changed

Economic data highlights will include:

WBC Leading Index

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AUD/USD: 4 hour

NZD/USD: 0.8365

The Kiwi finally made it to 0.8400 today, topping out at 0.8404, before retreating after the Senate comments, back to current levels at 0.8365 – just 10 points away from the levels of this time yesterday.

As with the Aud, the short term momentum does appear to point slightly lower, and a move back towards 0.8338 (38.2% of 0.8230/0.8380) looks possible, below which would head towards rising trend support at 0.8315.

Longer term momentum is still pointing higher, and thus, I think that near term dips will again be buying opportunities for an eventual return to higher ground, and above 0.8400 would see a test of the 19 Sept high of 0.8435.

For today, use 0.8340/0.8400 as a guide, but with an eye on the fiasco in the US to dominate direction.

Economic data highlights will include:

NZ CPI

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NZD/USD: 4 Hour