Monday, Oct 07 – Oct 11

Asad Rizvi

Today Monday is 7^th day and yet there is hardly any sign of reaching a deal to raise debt ceiling. This debate especially regarding enhancement of debt ceiling limit is likely to stretch until last minute (Oct 17), as both the political parties will try to take political mileage on the issue.

Delay means more bad news for US economy that will depress growth. In my earlier note last month, soon after the last FED FOMC meeting, I clearly pointed out that FED sensing trouble on debt ceiling issue refrained from early tapering and have preferred to drag until the deadline ceiling date is extended. Of course failing to reach an understanding by the deadline would mean default is unavoidable that will lead to more uncertainty. I have mentioned several times that the President of USA has the option of applying 14^th amendment that allows government to borrow.

More importantly as long as the differences are not sorted out, release of some the US economic data could be delayed, some may flow and some may not, as Bureau of Labor Statistics (BLS) closed their web-site that publishes regular data announced that BLS will not collect data, issue reports and will not respond to queries. They will only be able to update its web-site when Federal Government resumes operations.

However, since the ongoing shutdown does not does affect Federal Reserve, its office will remain open, this means FOMC minutes will be released as per schedule. The key market moving factor will be the language used in the report, as several Federal Reserve officials in their various speeches have hinted that tapering was a close call. Hence, Dovish tone will further weaken the Greenback, which means sell-off will be seen and if Hawks have been able to succeed in gathering momentum it should help US Dollar to recover.

Bottom line is that talking on anything else makes little sense, as market will remain focused towards development on US debt ceiling issue, unless settled.

GOLD @ 1310.15 = Gold will remain choppy though struggling to make gains but, there are couple of favorable factors that should help gold to recover, as lingering of US debt ceiling matter and possible Dovish FOMC tone would support gold. However, any strength should be temporary, as market has accepted the fact that tapering could be delayed, but is unavoidable. And do keep a close watch on talks about possible gold sale or swap by FED from its gold reserves. Though FED holding is around 8100 metric tons of gold worth rough $ 350 billion, any such talk could bring misery for the Yellow metal.

$ 1290-95 is the support level, if breaks the fall could extend up to $ 1260-65 zones, with major support at $ 1232. I am expecting a move towards $ 1322-25, break risk for test of $ 1345-50 levels, fails to hold the run-up could extend up to $ 1375-80. But market will remain choppy.

 EURO @ 1.3553 = Bias should be on the upside, as support 1.3420-40 should hold, only break risks for 1.3380. On the upside needs to break resistance around 1.3670-90, but small correction is possible before another upside attack for 1.3725. Range for the week 1.3350 – 1.3750.

GBP @ 1.6006 = Cable lost its upside momentum and now should hold around 1.5950-70 zones or else we could see deeper correction extending up to 1.5870-00 zones. Challenge is to crack 1.6090-00 levels for 1.6150. Range for week 1.5850-1.6190.

JPY @ 97.46 = The strength of Japanese currency will continue to dominate as long as US debt ceiling uncertainty looms. However, minutes of FOMC could add some spark if the tone of report is Dovish. Japanese currency has support around 98.10-20, if surrenders further weakening and a move towards 98.95 are possible. There is high probability that despite all odds Yen could make in the later part of the week. Break of 96.70 is required for a test of 96.1-10-20 zones. Range for the week 95.70 – 99.25.

AUD @ 0.9429 = Tone of Aussie will remain strong as 0.9340-50 support level should hold for a move towards 0.9480-90, break will encourage for a move towards 0.9550-60, or else 0.9280. Range for the week 0.9270– 0.9580.

DISCLAMER : The commentary/information presented is not intended for trading purpose. The idea is to exchange views with the members/readers. Therefore, I accept no responsibility or liability for any losses incurred due to position taking.