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1 Oct 2013
Greenback possibilities if the US politicians continue their folly
FXstreet.com (Barcelona) - Will the DXY react to the “risk-on / risk-off” dynamic or to the “Sell your Dollars!” dynamic if the US government is shut down Tuesday as a result of political bickering?
Instability in the US is not what risk bulls need – unless they have been waiting to buy more
Global traders and investors are on edge right now – bracing themselves for what may be coming tomorrow. Were you to put 100% faith in what the talking heads in the media are saying, you might run out and buy non-perishable food items, batteries and bottled water in advance of the catastrophic conditions that are surely coming if and when the shutdown takes place.
However, if you take a step back and realize that shutdowns like this have happened 17 times in U.S. history and that life pretty much went on without major consequence as a result – you will breathe a little easier. As long as the shutdown does not last too long, it is pretty safe to assume that everything will be ok and that any financial market reactions should be short-term and not too severe in nature.
Granted that things will be shallow and short-term in nature in all likelihood, what are the likely moves that should occur in stocks, bonds and currencies? For answers, let’s go to the charts…
Technicals say a little more downside work to do for DXY, bond yields and stocks
Technicians say that the DXY tested one possible Fibonacci-generated short-term support at 80.11 early Monday and has thus far held above that level. However, those same technicians point out that their outlook for the 10-year US Treasury Note is for more of a decline in yields down to 2.465% (from 2.615% currently). They note that it is questionable whether the DXY will automatically decline with yields, but that there is a good likelihood of it doing so. The next level of support for DXY below 80.11 is 79.83 with 79.55 backing that up.
Both the drop in yields and the likely accompanying drop in the DXY are likely to be coincident with some more short-term weakness in stocks. Technicians are ranging in their short-term downside projections in the S&P 500 from 1,600 up to 1,665 with a concentration of opinions coming in at the 1,660 level.
Instability in the US is not what risk bulls need – unless they have been waiting to buy more
Global traders and investors are on edge right now – bracing themselves for what may be coming tomorrow. Were you to put 100% faith in what the talking heads in the media are saying, you might run out and buy non-perishable food items, batteries and bottled water in advance of the catastrophic conditions that are surely coming if and when the shutdown takes place.
However, if you take a step back and realize that shutdowns like this have happened 17 times in U.S. history and that life pretty much went on without major consequence as a result – you will breathe a little easier. As long as the shutdown does not last too long, it is pretty safe to assume that everything will be ok and that any financial market reactions should be short-term and not too severe in nature.
Granted that things will be shallow and short-term in nature in all likelihood, what are the likely moves that should occur in stocks, bonds and currencies? For answers, let’s go to the charts…
Technicals say a little more downside work to do for DXY, bond yields and stocks
Technicians say that the DXY tested one possible Fibonacci-generated short-term support at 80.11 early Monday and has thus far held above that level. However, those same technicians point out that their outlook for the 10-year US Treasury Note is for more of a decline in yields down to 2.465% (from 2.615% currently). They note that it is questionable whether the DXY will automatically decline with yields, but that there is a good likelihood of it doing so. The next level of support for DXY below 80.11 is 79.83 with 79.55 backing that up.
Both the drop in yields and the likely accompanying drop in the DXY are likely to be coincident with some more short-term weakness in stocks. Technicians are ranging in their short-term downside projections in the S&P 500 from 1,600 up to 1,665 with a concentration of opinions coming in at the 1,660 level.