US Policymakers Spread Optimism, Global Equities Recover, Riskier Currencies Grow - 11.10.2013

Main concerns of market participants remain the possibility of US default and government shutdown. A breakthrough of US political deadlock seems possible before October 17 as House Republican leaders and Barack Obama discussed yesterday at the White House to resolve crisis. John Boehner offered a plan for a short term increase in the borrowing limit without being clear what Obama’s reaction was.

US stock indices recovered losses of the last two weeks with S&P 500 rising by 2.18% to 1692.56 and Dow Jones climbing also by 2.18% to 15126.07. Nonetheless, the US government closure enters to 11th day on Friday, that is likely to reduce annualized GDP by 0.4%, adding to that consumer and business confidence could be damaged, further hurting growth.

The US dollar index found resistance at 80.55 yesterday and eased towards 80.32, fluctuating mainly between these two range boundaries. Despite that hopes were growing over a deal between Obama and Republican leaders, unemployment claims capped greenback’s upside. US Jobless Claims on Thursday release increased surprisingly to 374K for the previous week up from projections around 307K and up from two weeks ago at 308K.

US Jobless Claims

Last night, Japan’s central bank Governor said that would do whatever is needed to end deflation. He added that current monetary stimulus program returns the expected results and BOJ would stick on that. The USDJPY therefore advanced even higher earlier today reaching resistance at 98.53 and going well above the falling trend line, although some oscillators like Stochastic are overbought creating concerns over continuation of the upside in the near term.

USDJPY

The Aussie contra US dollar found its way back to recent weekly highs at 0.9483 as global equities were recovering on improved risk sentiment. Technically, the AUDUSD is nicely developing a bullish structure and we would expect prices to continue although there is risk on looming Chinese Trade Balance and Money Supply releases. Lastly, AUDJPY could provide some nice trading opportunities to the upside as the sentiment improves, we would follow the break of 93.55, confirmed by AUDUSD breach of resistance at 0.9521.

Furthermore, during the weekend we expect some developments over US debt ceiling that could further support higher yielding currencies. It is likely that borrowing limit could be raised for one or two months by lawmakers to allow for discussions on US fiscal management.