2013-10-01

Good morning,

Focus was yesterday on the shutdown of the US congress for the first time in 17 years and as a consequence, risk appetite was muted with equity indices closing the day in negative in Europe as well as the US. For Europe, political tensions made peripheral yields trend higher once again following an unexpected development, particularly in Italy.

The US Dollar fell yesterday against most majors, but uncertainty is dominating the markets and probably will be until a solution has been found in the US with regards to the congress and US debt ceiling. As a result, most FX pairs were consolidating with a USD-bearish bias. The consequences for the US could be quite severe with 800,000 federal employees out of work  and Morgan Stanley estimates a drop in Q4 growth up to 0.5%. EUR/USD had a trading range of about 80 pips against and ATR100 of 94 pips. Range in the market is still the 1.3464-1.3568 area, where we have been since the FOMC decided not to taper. Cable took another step higher and is now eyeing 2013 highs at 1.6310.

Overnight, the bad news from the US was offset by decent figures in the Asian region. Aussie was the best performer against the US Dollar following a more supportive statement from the Reserve Bank of Australia with the decision to keep interest rates unchanged at 2.5% as expected, partly due to an increase in house prices. Positive retail sales added to the optimism. AUD/USD bounced back from the 100-day SMA and is up more than a figure, testing the 0.94-figure.

From Japan, the Tankan index reached the highest levels in almost six years as a result of the interventions by the BoJ, who also decided going forward with a plan to raise Japan’s sales tax in April and implement a stimulus plan. Overnight, the JPY has strengthened a tad as the market is lacking information of the new stimuli. USD/JPY found bids yesterday at the daily Ichimoku Cloud base, but offers are heavy in the 98.50/75-area.

Today, the market will be alert for any news from the political side and we will probably have another session with quite a lot of market noise. Also in light of the ECB meeting and Bernanke speech tomorrow. From the macro side, German Unemployment (exp unchanged at 6.8%) will be in focus this morning along with PMI figures from the Euro zone as well as the UK.

From the US, the September ISM Manufacturing will be interesting with market consensus at 55.0 vs. 55.7 prior.

Have a nice day.