For the second day in a row the US dollar is stronger as the weakness seen in US equities yesterday has carried over into the European trading session. US law makers are no closer to a solution to raise the debt ceiling than they were yesterday and this is reflected in both the value of the EUR/USD and in global equities.
Falling in-line with the S&P’s 2.0% decline yesterday European equities are lower across the board with the DAX down 1.75% and the FTSE lower by 0.75%. A lack of deal to avert a US default continues to weigh on market sentiment combined with yesterday’s weak core durable goods orders has hit equities particularly hard.
In the foreign exchange markets the dollar has surprisingly benefited from this environment while gains in the JPY and CHF have been mute. In all fairness the USD/CHF did fall below 0.800 before moving slightly higher. The euro is down versus the dollar but noticeably lower in the crosses. This is despite Spain reporting a 19% reduction of the government’s budget deficit and declining German unemployment, albeit at a slower than expected.
While the media headlines point to the US debt negotiations as the market mover the inability of the EUR/USD to hold above the 1.45 level is telling. At 1.4270 the pair has made a 38% retracement of the move from July 12th to yesterday’s high. The next retracement target is found at 1.4100 with support just below at 1.4070. Resistance is at 1.4320 and yesterday’s high of 1.4540. In the crosses the EUR/JPY has broken lower from a bearish flag pattern and has support at 110.60 followed by 109.55. A move higher could find its way to 112.75 without jeopardizing the bearish chart pattern.
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