Hello Traders!
This week we had quite a flat activity. The market has practically gone nowhere, probably amid concerns of the so called “Shutdown” of the American government services. This issue seems to concern and worry a lot of market participants and investors, not only in the united states. On the other hand, listening to what Goldman Sachs has to say about that might shed a little optimism for us, traders and investors : “It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.” So one way a shutdown makes the passage of a debt limit increase easier is that it can persuade outside actors to come off the sidelines and begin pressuring the Republican Party to cut a deal, in such a scenario the market will probably wake up from the low volatility situation it is now and may even resume the year long Bull momentum. One problem in the politics of the fiscal fight so far is that business leaders, Wall Street, voters have been assuming that Republicans and Democrats will argue and complain but work all this out before the government closes down or defaults. The actual shutdown is proving that comforting notion wrong, and those groups will begin exerting real political pressure to force a resolution before a default happens. In other words, that shutdown is actually good for the market as it lowers the risk of the much bigger problem - The debt limit. So, trading wise, the reaction of the market has been contained so far, with flat to lower price action. A more prudent approach should be taken later next week when the debt limit time is up.
Currencies
The Euro continues to strengthen against the dollar, in fact, all major currencies have gained some ground against the dollar recent weeks, and is seems like they are on a one direction ride. Plotting the DIG Pivot Break (An indicator of ProTradingIndicators.com available on TradingView) puts a clear image of a strong uptrend on the daily chart. We can see a series of higher highs and higher lows indicated by the Pivot Break. Obviously the next resistance is the high that took place earlier this year, but reaching there without a decent pullback would be somewhat hard to sustain. A support level that could be considered important is the 1.3400 that proved itself time after time as being a level where buyers and sellers struggle for the lead.
The situation of the Sterling is much “worse”, it has gained 1200 basis points in a matter of 3 months without showing any signs of exhaustion. Therefore we would really wait for a decent pullback before any consideration to go long on that one. Next resistance level resides on the 1.6300 area (Highs of last year) and regarding the next support level, we are actually sitting right on it - 1.600 and change. That being said, if in any case things regarding the debt limit will continue to sit on investors head, be prepared for a continuation of that price direction, as there is no greater force than fundamental incentives.
Economic events.
Oct 8 @ 08:30 AM - Trade Balance - Forecast: -$40B
Oct 9 @ 10:00 AM - Wholesale Inventories - Forecast: 0.2%
Oct 11 @ 08:30 Retail Sales - Forecast: 0.2%
This week we had quite a flat activity. The market has practically gone nowhere, probably amid concerns of the so called “Shutdown” of the American government services. This issue seems to concern and worry a lot of market participants and investors, not only in the united states. On the other hand, listening to what Goldman Sachs has to say about that might shed a little optimism for us, traders and investors : “It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.” So one way a shutdown makes the passage of a debt limit increase easier is that it can persuade outside actors to come off the sidelines and begin pressuring the Republican Party to cut a deal, in such a scenario the market will probably wake up from the low volatility situation it is now and may even resume the year long Bull momentum. One problem in the politics of the fiscal fight so far is that business leaders, Wall Street, voters have been assuming that Republicans and Democrats will argue and complain but work all this out before the government closes down or defaults. The actual shutdown is proving that comforting notion wrong, and those groups will begin exerting real political pressure to force a resolution before a default happens. In other words, that shutdown is actually good for the market as it lowers the risk of the much bigger problem - The debt limit. So, trading wise, the reaction of the market has been contained so far, with flat to lower price action. A more prudent approach should be taken later next week when the debt limit time is up.
Currencies
The Euro continues to strengthen against the dollar, in fact, all major currencies have gained some ground against the dollar recent weeks, and is seems like they are on a one direction ride. Plotting the DIG Pivot Break (An indicator of ProTradingIndicators.com available on TradingView) puts a clear image of a strong uptrend on the daily chart. We can see a series of higher highs and higher lows indicated by the Pivot Break. Obviously the next resistance is the high that took place earlier this year, but reaching there without a decent pullback would be somewhat hard to sustain. A support level that could be considered important is the 1.3400 that proved itself time after time as being a level where buyers and sellers struggle for the lead.
The situation of the Sterling is much “worse”, it has gained 1200 basis points in a matter of 3 months without showing any signs of exhaustion. Therefore we would really wait for a decent pullback before any consideration to go long on that one. Next resistance level resides on the 1.6300 area (Highs of last year) and regarding the next support level, we are actually sitting right on it - 1.600 and change. That being said, if in any case things regarding the debt limit will continue to sit on investors head, be prepared for a continuation of that price direction, as there is no greater force than fundamental incentives.
Economic events.
Oct 8 @ 08:30 AM - Trade Balance - Forecast: -$40B
Oct 9 @ 10:00 AM - Wholesale Inventories - Forecast: 0.2%
Oct 11 @ 08:30 Retail Sales - Forecast: 0.2%