AUD/USD: 0.9395EUR/USD: 1.3530The dollar has been broadly under pressure again today, given the US Government shutdown, with the Euro reaching 1.3587 and also with the DXY touching the 200 WMA support that we mentioned on the weekend at 79.86.. It has since regained some of the lost ground and is currently trading pretty much unchanged on the session at 1.3530 and 80.18 respectively.
The uncertainty as to when Government activity will keep the market on its toes but it is generally assumed that it will be sorted out in the next couple of weeks. The bigger problem may lie a little further out, when the talks over the US Government's borrowing capacity begin on Oct 17. If there is failure to agree on the debt ceiling, we could be looking at a potential default in the US, which in turn would put severe strain on the economy, weakening growth data and potentially bringing about a cut in credit ratings and presumably a much weaker US dollar.
In the meantime, today's ISM manufacturing data recorded a rise to 56.2 in September, up from 55.7 in August and above expectations of 55.00, which bought some reprieve for the dollar. Earlier, the EU PMI's were mixed, and on the political front in Italy, the Euro received some support on the news that the PM, Enrico Letta's coalition government looks like surviving a confidence vote later today.
Later today, we have the ECB rate decision (no change expected), but with the chances of a dovish press conference, which may put a dent into the Euro's recent rally. We also need to keep a close eye on the US ADP Jobs data, which will have added importance given that the NFP data is unlikely to be released on Friday. Expectations are for a rise of 180K.
Technically we are now back where we were this time yesterday, and while I would be reluctant to put too much into it, given that the momentum indicators are pretty neutral, we are sitting above trend line support at 1.3510. There were good bids in Europe last night at 1.3500/20 and these could well hold for now. The daily Tenkan has now risen to 1.3522 and a run down below 1.3500/20 would break this and could prompt fresh selling. A break of 1.3500 would see a return towards the first Fibo support at 1.3472 (23.6% of 1.3104/1.3587). Below this would head towards minor support at 1.3450 and then towards 1.3400 (38.2%).
On the topside, today's high at 1.3587 will again see sellers, above which 1.3600 would attract. Beyond there could prompt a test of the 1 Feb high at 1.3710, but as I said yesterday, it would probably take a weak US NFP on Friday, and the consequent doubts that there will be any December tapering from the Fed, to set this into action. At present it does not look likely that the NFP will be part of the game plan.
Today I suspect it could be a day to sell rallies and I would initially use 1.3470/1.3570 as a guide, but with a good chance of some SL selling pushing the Euro a bit lower if/when the rising trend line gives way which would increase the downside momentum.
Economic data highlights will include:
EU PPI, ECB IR Decision/Press Conference, US ADP Jobs Data
