The dollar sank to its lowest level in eight weeks against the yen amid concern U.S. lawmakers will fail to reach an agreement to raise the federal debt ceiling and avoid the first American default.
U.S. Treasury Secretary Jacob J. Lew renewed his call for extending the nation’s debt limit to avoid a default.
“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said yesterday on CNN. “Congress is playing with fire.” The government shutdown entered a seventh day after lawmakers failed to find an agreement on the budget.
Boehner said the House can’t pass an increase to the U.S. debt ceiling without packaging it with other provisions. The Obama administration has said it won’t negotiate with Republicans over funding the government or raising the debt ceiling, arguing that it is part of the basic functions of Congress and shouldn’t be used as a point of leverage. The U.S. will run out of its ability to borrow on Oct. 17.
EURO
The Euro holds higher on Monday, posting fresh intraday highs at $1.3590. The upside continues to gather pace despite the EMU’s Investor Confidence gauged by the Sentix index disappointed traders for the month of October, falling to 6.1 vs. 10.6 expected and 6.5 from the previous month.
Separate report showed Eurozone GDP grew for the second consecutive month by 0.3% q/q in Q2, following a 0.3% rise registered the previous quarter.
EUR/USD trades at $1.3570, retreating from Thursday’s high on $1.3645/50. Below $1.3460 (Sep 25 low) support is around $1.3400. Above recent highs resistance is near yearly high on $1.3712.
POUND
The sterling is posting meager gains at the beginning of the week.
The big event for the pound ahead in the week will be the BoE minutes due on Wednesday. Market consensus expects a unanimous vote favouring the current status quo, which would be indicative that the central bank is moving further away from its easing cycle, giving support to the sterling.
The pound rose the most in a week against the dollar before the Bank of England meets this week. It will keep its benchmark rate at a record-low 0.5% and its asset-purchase target at 375 billion pounds ($601.5 billion) on Oct. 10.
GBP/USD recovered from Friday’s lows on $1.6020. Initial resistance is near $1.6070 (23.6% Fibo of the $1.6250 - $1.6020 decline), then - at $1.6140 (50%). Above $1.6260 (Oct 1 high) resistance is around $1.6340 (Jan 2 highs). Now support comes at $1.6000 (Sep 26 lows) with a break under widens losses to $1.5950 (Sep 24 lows).
YEN
The yen climbed against all of its major peers after U.S. Treasury Secretary Jacob J. Lew’s comments.
“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said yesterday.
USD/JPY holds a bit below Y97.00. Closest support comes a Y96.80 (Aug 17 lows and channel line from Sep 20) and Y95.80 (Aug 8 lows). Above Y97.00 resistance comes at Y97.70 (earlier broken support line from Jun 13), then - at Y98.70 (Tuesday’s high).
DATA PREVIEW
There is no important data today.
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