The Weekend Bring Little Relief to the Capital Markets
Investors were generally not surprised that government officials were unable to come to an agreement over the weekend, given the brinkmanship and failure of the House and Administration during Friday’s trading session. The parties are still apart and many believe that their decision to avoid a default will come down to the eleventh hour.
Since the stakes of not avoiding a debt ceiling default are so high, most investors expect that a default will be avoided. The upcoming October 17 time frame seems like a line in the sand as it is the date when the US will run out of the required funds to pay their obligations, but it is not until the end of the month that a payment needs to be made.
Last week, there were reports that a number of financial institutions were avoiding short term treasury obligations that would require the US to make a payment. This includes both Fidelity and Goldman Sachs (NYSE:GS) . It is clear that even the threat of default is disrupting the functioning of the global capital markets.
Looking forward to economic data this week the German ZEW survey on Tuesday and the inflation and trade figures on Wednesday will be the most import data releases for the Euro currency pair. The EU industrial production rose by 1.0% year over year which was better than expected. The German figure was the driving force behind the increase. German industrial production increased by 1.4% rather than 1.0% expected by economists.
The Euro held steady on Monday holding near the 10-day moving average at 1.3560. Momentum is pointing to lower prices with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
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