Good Morning, Friends. The federal government has been largely shut for a week, and the markets have been, on balance, surprisingly orderly. The Treasury maintains that the government’s debt ceiling will be reached on October 17, which may mean – no one, so far as I’m aware, knows for sure – that some of the 80 million bills that are paid each month by the government will not go into the mail on time. It may also make it difficult for Treasury to roll over debt, such as the T-bills that it auctions weekly. The latter, by the way, will be a very big deal if it comes to pass, and I would expect stock futures to get crushed.Â
While an agreement could come at any time, and the 17th is still a week and change away, this isn’t the sort of thing that encourages traders to hold Dollars. EUR/USD has moved higher for the past month, reaching a high last week of 1.3645. Yesterday was an inside day, and the price action thus far in today’s session has been inside yesterday’s bar. The direction in which an inside bar is broken frequently provides some near term direction, so a move above 1.3590 or below 1.3541 will be potentially interesting.Â
If I found myself sitting profitably long of EUR/USD, I would be tempted to have a stop on at least a portion of my position below Friday’s 1.3537 low, since I would expect a break there to take the price down to 1.3470, an area which has provided support in the recent past. Headlines suggesting that a deal to reopen the government, and (in particular) raise the debt ceiling is in process should be positive for the Dollar, quite possibly bringing EUR/USD sharply lower in the near term. By the same token, as the 17th approaches without an agreement, I would expect traders to become increasingly wary of holding Dollars, and would look for the Euro, as an alternative (f flawed) reserve currency, to benefit, along with GBP and CHF.Â
The chart of EUR/USD is positive, and there doesn’t appear to be any reason for those who are long to dump their holdings. It’s certainly possible that the next significant move will be higher. There is considerable headline risk, however, and the weight of opinion is that the closer we come to a crisis, the more likely it is that a compromise will be reached. I’m not altogether sure that’s the case, but because of the risk of a significant reaction, I would keep a stop in place, either close at hand or below the 1.3470 support area noted above. if I had no position on, I would be inclined to either wait for a buyable dip, looking to take a partial position around 1.3470, Â and /or set a buy stop on a break above the recent high at, say, 1.3650.
Whatever happens, best of luck!
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