Risks As US Policy Makers Fail To Reach Agreement

by Phil Moore October 14, 2013

Global markets begin the week with the hope that the US government budget standoff will come to an end. The consensus view for the market it that some form of successful restoration of funding must be reached as the political economic consequences of this not happen are too bad to think about.

What this will mean for markets in terms of gains is however unclear. Already near highs, Stock market Indices seem unlikely to jump enthusiastically forward. Furthermore a successful resolution will also see the release of delayed ‘Non Farm Payrolls’ data. This adds the potential for heightened volatility later in the week, given that there is no fixed time for the data to be released.

This week we also get a glimpse as to how growth is holding up elsewhere around the globe. The German ZEW Economic sentiment will provide a glimpse of how growth is faring in the Euro Zones biggest economy. The power house of Europe will be expected to present a set of positive figures in line with previous data.

Of course one of the biggest global stories of recent years is China. Full Year on Year GDP figures due on Thursday are likely to provide a broader picture of how growth around the globe is faring. A slowdown could put pressure on already anxious markets later in the week.

Key New This Week

EUR/USD - Price remains above the 5, 10 and 20 day SMA , keeping the bias higher for now, despite pulling back from last week’s high at 1.3645. Bias remains to the upside and we look for a retest of last week’s high.
USD/JPY - The pair has started the week lower on continued risk aversion in the markets. However a corrective move lower is within expectations and we would expect to see a move toward 97.50 before the resumption of broader gains.
USD/CHF - A move and close above 0.9100 by the end of the week could provide a platform for additional gains this week. Look higher but be aware of many previous false dawns on this pair.
GBP/USD - Since hitting a high of 1.6259 the pair has reversed strongly. While technically much of the pullback has been to profit taking, 1.6000 is likely to be tested but should provide good support before we see another move higher.

Major Indices

DOW - Ending the week back above 15000 the Index briefly fell to 147000 before pushing higher. US government budget woes have weighed on an otherwise bullish outlook. Bias remains higher but watch out for short term pullbacks.
NASDAQ - Like the DOW, the NASDAQ fell victim to deteriorating fundamentals as US budget concerns continued. An overall bullish picture is retained however with the Index bouncing from 3650.
FTSE - The FTSE mirrored falls on other major indices, finding support just above 6350, moving higher to end the week at 6487.Despite recent falls the overall outlook remains bullish so look higher on any further pullbacks to these levels.

Commodities

Oil – Price pushed lower over the week but again support kicked in around $101. While price holds above $100 per barrel we retain a bullish bias.
Gold – A pullback below $1300 does little to inspire confidence in this market, despite recent risk tones in the market. Over the short term expect further bearish moves unless fundamental market risk really kicks in.