Image by jhyerczyk via Flickr
The U.S. Dollar is trading mixed this morning ahead of the New York opening after initially opening higher. The catalyst behind this morning’s action is the news that Washington lawmakers finally agreed on a deal to raise the debt ceiling and narrow the deficit. While the framework is in place for avoiding a U.S.default, the deal still has to be approved by Congress and signed by the President. The deal doesn’t mean the debate over theU.S. deficit will go away as it is not a long-term solution.
In addition to this, traders still have to deal with the strong possibility of a debt rating cut by one or more of the credit rating services. The S&P Corp. seems to be the one leaning toward making the cut. Although the global equity markets are strong this morning, a debt rating reduction could trigger a turnaround.
The mixed currency reaction seems to be indicating uncertainty, but the deck appears to be stacked against the Dollar either way. Traders seem to be poised to sell the Dollar if the debt rating is slashed or sell the Dollar in favor of more risky assets if the U.S. can avoid the ratings cut. Oversold technical conditions appear to be the only reason why the Dollar would rise at this point.
Another question that needs to be addressed at this time is market volatility. The passing of this bill is not likely to make the volatility go away. Once again a short-term fix has been applied to a situation that needs a long-term solution.
Technically, there doesn’t appear to be any change in trends or reversals taking place, meaning there is still pressure on the U.S. Dollar.
The September Euro is in an uptrend. A new bottom has been formed at 1.4212. A trade through 1.4514 will reaffirm the uptrend.
The September British Pound is also in an uptrend with 1.6251 a new swing bottom. The short-term upside target is pegged at 1.6525.
The September Swiss Franc is in a solid uptrend with no top in sight. The strong rally is suggesting that market participants are still thinking safety first because of the problems in theU.S.and Euro Zone. Some traders believe that an intervention is imminent.
The September Canadian Dollar is in an uptrend. A break through 1.0301 will turn the main trend to down. A new swing top has been formed at 1.0618. This currency may be weakening because of the country’s ties to theU.S.economy.
The September Japanese Yen took out the “tsunami” high recently as traders continued to shed risk. The Yen took a hit when the news broke that a debt ceiling deal had been struck, but uncertainty has triggered a rebound, forcing shorts to cover. There is speculation that a fresh round of intervention may be right around the corner, but it shouldn’t be like the concerted effort from a collection of central banks like it was in March 2011.
