US government shut down for the first time in 17 years
The dollar faced pressure on Tuesday, as the US government shut down for the first time in 17 years. House Republicans and Senate Democrats were unable to reach an agreement that would allow the government to be able to continue to function for the balance of 2013. UK data was slightly worse than expected, but this did not seem to alter the trajectory of the Sterling trend.
The US government closed non-essential operations on Tuesday for the first time since 1996. House Republicans are adamant that any continuing resolution be tied to a repeal of the Affordable Care Act. The Senate, which is democratic controlled, refuses to tie any vote on the budget to Obamacare. Health insurance continues to be a lightning rod, and the fallout from the shutdown could reduce GDP by 0.3% per month.
In the UK, factory data came in slightly worse than expected. The UK’s manufacturing PMI came dipped to 56.7 from 57.1 in August. This is the first decline since February did not derail the sterling trend, which pushed through $1.6200, for new highs since early January.
In other European news, the euro area manufacturing PMI was unchanged from the flash reading of 51.1, down from 51.4 in August. Germany was revised down from the flash, while France was revised higher. It is the third consecutive month that the euro area manufacturing PMI is above 50, which is viewed as an expansionary sign.
Cable continued to trend higher breaking through resistance near a horizontal trend line at 1.6163. The next level of target resistance is weekly highs near 1.63. Support on the GBPUSD currency pair is seen near the 10-day moving average at 1.6088. Momentum on the currency pair is positive with the MACD (moving average convergence divergence) index printing in positive territory. The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is flashing a warning sign, printing at 74, which is above the overbought trigger level of 70.
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