A Deal Could Drive Dollar Higher
Negotiations over the government shutdown made headway on Thursday as the House Republicans met with the White house in an effort to come to a resolution that would handle the debt ceiling. The President rejected the first proposal that extended the debt ceiling for six weeks but did not address the government shutdown.
With the headway made on Thursday a resolution will likely come over the weekend, which is why stocks seem to have held Thursday’s outsized gains. The new negotiations are likely to focus on spending cuts, which will allow the Republicans to save face. The US deficit has declined faster than anticipated, but the cuts have been focused on discretionary spending as opposed to entitlement reform.
News in Asian seemed to buoy the Japanese markets. Japan reported record strong M3 growth of 3.1% in September. This is a function of BOJ asset purchases, and reflects an acceleration of the velocity of money. This is a positive step for the central bank, as it reflects true inflation as money is being spread around. Additionally, the Corporate Goods Price Index rose 0.3% in line with expectations.
The USDJPY currency pair is consolidating in a large range between 100 and 97, as declining US yields created a headwind for the currency pair. If the US government is able to reopen, traders will refocus on economic data, which will be released in earnest in the coming weeks. Momentum on the currency pair is turning positive with the MACD (moving average convergence divergence index) generating a buy signal where the spread (the 12-daymoving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI (relative strength index) is printing at 50 which is in the middle of the neutral range and reflects consolidation.
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