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The Dollar Faces Shutdown Headwinds

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The Dollar Faces Shutdown Headwinds

This past weekend saw little activity on the negotiations for opening the US government and brought on additional market volatility. The dollar was under pressure against the Yen, as yields in the US moved lower as treasuries have become the preferred safe haven.

Although the shutdown is having a slight negative effect on confidence, a default, which would occur without an increase in the debt ceiling, (the amount of money the treasury is allowed to borrow to pay for continuing operations), could be catastrophic.

John Boehner (the speaker of the House) said Sunday he wouldn’t bring up bills to fully reopen the government or increase the country’s borrowing limit unless Democrats agree to broader talks aimed at trimming the deficit. Initially the conversation from the Republican standpoint was focused on the Affordable Care Act, but now the Speaker is broadening the topic to budget cuts.

The speaker insisted he couldn’t muster enough votes to pass either one without the concessions. “The votes are not in the House to pass a clean debt limit, and the president is risking default by not having a conversation with us”. The administration’s response continues to be that the congress needs to pay its obligations and they won’t negotiate on previously passed laws.

The 2-year yield differential between the EUR and the US has moved in favor of the Euro, putting downward pressure on the greenback.

The EURUSD currency pair is at the upper end of the current range, after breaking out above the 1.35 level late last week. Momentum on the currency pair is flattening despite the fact that the MACD is printing in positive territory. The RSI (relative strength index) is printing near 63, which is on the upper end of the neutral range, below the overbought trigger level of 70.

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