NEWSLETTERPRO - Dollar plunges after US government shuts down for the first time in 17 years

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MORNING BRIEF

Dollar plunges after US government shuts down for the first time in 17 years
It is a rather uncommon morning today as for the first time in 17 years several parts of the US government have shut down after the Senate and the Congress failed to come to an agreement regarding raising the federal debt ceiling. This fact obviously has hurt the Dollar that fell against most major peers and reached a nine-month low against the advancing British Pound. Implications of this shutdown in US government sectors could have a significant effect on the American GDP as analysts estimate that this situation could cut Q4 economic output in the US as much as 1,4%, according to economists from Moody’s Analytics Inc. Dollar will remain weak for the coming days but we feel that everything is going to be alright in the end for the US economy, it might take a minor hit in GDP but after a deal is reached the Dollar will rebound and move higher.

German unemployment, PMIs and ISM Manufacturing
Our day today starts early with the German Unemployment Rate coming at 8.55 UK time, followed by the German PMI at the same time, the Euro-zone PMI a few minutes later and the British PMI and Euro-zone Unemployment Rate after half an hour. All these announcements will provide interesting information on what’s the economic condition in Europe. Should these figures provide encouraging signs of a steady European recovery the EUR/USD will probably have enough fuel to break out of the range it’s been for the past days. Finally, coming at 15.00 the ISM Manufacturing Index will be announced from the US however everybody’s attention is focused on the implications of the government shutdown that occurred so we don’t expect major Dollar reaction based on this figure.
Economic Calendar
Time Currency Event Importance Forecast Previous
8.55 EUR German Unemployment High 6.8% 6.8%
8.55 EUR German PMI Medium 51.3 51.3
9.00 EUR Euro-zone PMI Medium 51.1 51.1
9.30 GBP British PMI Medium 57.5 57.2
10.00 EUR Euro-zone Unemployment Medium 12.1% 12.1%
15.00 USD ISM Manufacturing High 55.1 55.7

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TECHNICAL ANALYSIS & LEVELS

EUR/USD

Euro remained within the range it holds for a few days but Dollar weakness caused by the US shutdown might be the catalyst needed for the pair to break above the 1.3560 resistance. In case the Single currency breaches above 1.3560 then we will definitely enter long and we can follow 2 different scenarios: a short-term intra-day setup with targets at 1.3585 and 1.3625 and a stop below 1.3500 or a more medium-term trade with targets at 1.3620 and 1.3700 eventually with a stop below 1.3460 in this case. In the opposite case that news events today disappoint and Euro never clears 1.3560 then we can attempt to capitalize on the ranged movement entering short near the 1.3560 resistance and targeting 1.3500. The bias however is bullish and we would prefer a clear break higher for the European currency.
GBP/USD

The Pound paid us good money for being patient and letting it run higher. Our secondary target at 1.6240 was hit overnight and we enjoyed a perfectly executed trade. Now for today we expect the Pound to retrace a bit lower and probably challenge the 1.6200 level or even lower at 1.6150. We will stand aside and let the currency breathe before we decide to jump back in and chase higher levels as the bias remains bullish for the British Pound and with Dollar weakening across the board we feel that this rally might still have fuel in the tank.

FTSE 100

The FTSE 100 also moved exactly as estimated and following the weekend news that no solution was found on the debt issue in the US opened lower and hit our second target at 6.459. The index spent the rest of the day around that level showing that it will require further catalysts to reach lower. However, we feel that the British index will retrace higher as conditions in the UK are improving and the business climate offers investing opportunities. We are keen to see how the index will move and the question posed is whether it will follow its American counterparts, the Dow Jones and the S&P, lower or it will hold its own. For the day we will stand aside, enjoy our profits and wait for another opportunity to arise.

Gold

Gold pulled lower yesterday and hit our stops on the half trade we had left and overall the trade produced a small profit since our first half was closed for approximately $20 of profit and the second half suffered a $10 loss. Gold remains a question as it is hit both from Dollar weakness but also is on a trend of its own so once again caution is advised and positions to the yellow metal should not be a big part of any portfolio. For today we have an interesting idea as we feel that the commodity will move higher: we favor a long entry just above the $1.335 level with targets at $1.340 and $1.350 levels and a stop placed below the $1.320 mark. We must insist that this trade is a rather risky one and should be taken with a reduced trade size as Gold is moving in a weird pattern and we wouldn’t want to risk much of yesterday’s profits on this volatile instrument until we get a more clear grip on its trend.

All charts have been created using FXCM’s Trading Station platform.

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