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Government shutdown prompts trepidation to the capital markets

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Government shutdown prompts trepidation to the capital markets

The third day of the government shutdown continued to bring trepidation to the capital markets as investors start to worry about the looming debt ceiling. On Wednesday the administration met with leaders of the major Wall Street firms in an effort to generate support for a conclusion to this matter.

The government shutdown is embarrassing and disruptive on many levels. The debt ceiling brings the possibility of default, which could inflict pain to a broader audience. The debt ceiling debate will come to a head on October 17, 2013. There is the possibility that the government shutdown rolls right into the debt ceiling debate. The more damage that the Republican leadership perceives is being inflicted, the greater the chances of a larger deal between the two parties.

The ECB met on Wednesday and left interest rates unchanged. The comments were similar with the ECB reiterating their willingness to stand ready to act if necessary. On the Economic front, the ECB kept its forecast the same. The UK service PMI printed at 60.3 from 60.5, but above the 60.0 consensus estimate. Sterling traded higher in response, gaining slightly.

The EURUSD currency pair pierced resistance near 1.3570, and is poised to test weekly resistance levels near 1.3725. Support on the currency pair is seen near the 10-day moving average at 1.3525. Momentum is beginning to pick up with the MACD spread (the 12-day moving average minus the 26-day moving average) diverging from the 9-day moving average of the spread. The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 70, which could be viewed as a warning sign that the EURUSD is overbought and is poised to correct in the near future.

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